How one health factor can drop you a rate class: worked cases

Applicants are often surprised that one item can change the price of a life insurance policy for 20 years. They have a healthy weight, they exercise, they do not smoke, and the offer comes back one class below the one they were quoted. The reason is usually simple: rate classes are set by criteria, and a profile that clears nine criteria and misses the tenth falls to the class that the tenth allows.

This post walks through four invented applicants to show how that logic works. The scale in the examples is fictional and the numbers are made up. They do not describe any real insurer's guidelines or any real person's chances. What carries over is the reasoning.

How a class gets decided

Each insurer publishes underwriting guidelines to its underwriters, and each sets the limits for each class on a set of factors: build, blood pressure, cholesterol and other lab values, tobacco use, personal medical history, family history, driving record and sometimes occupation or avocations. The guide to life insurance rate classes: preferred plus to substandard describes the usual factors.

There are two common ways to combine them.

• A strictest-factor approach. Each class has a limit for each factor, and the applicant lands in the best class for which every factor qualifies. One factor outside the limit for class A moves the applicant to class B, even if every other factor is excellent.
• A credit-and-debit approach. Each factor earns credits or debits, and the total determines the class. A strong factor can offset a weak one.

Insurers use some mix of these, and the details are not public in a form a consumer can read. That is why two companies can place the same person in different classes, and why an agent who knows the market can matter. The post on borderline rate class cases: when a few points change your price looks at cases that sit right at the edge.

For the examples below, assume a fictional insurer uses the strictest-factor approach for the top class, with this invented guide:

Assume a 20-year, $500,000 level term policy, and these invented monthly prices for a 38-year-old nonsmoker man: top class $28, next class $34, third class $42, fourth class $55. They are for arithmetic only, and real premiums differ by age, insurer and year.

Case 1: Tomás and the single high reading

Tomás, 38, runs, eats well, has never smoked and has a healthy weight. His application goes smoothly. At the exam, his blood pressure is read at 142/88. His home readings, which he has kept in a notebook, run around 122/78.

Under the invented guide, 142/88 is above the top-class limit of 135/85 and just above the next limit of 140/90 on the first number. That could push him two classes down. But exam readings are usually taken more than once, and underwriters often look at the average of several readings and the pattern in the records, not a single number. Suppose the examiner takes three readings: 142/88, 138/86 and 134/84. The average is (142 + 138 + 134) / 3 = 138 for the top number and (88 + 86 + 84) / 3 = 86 for the bottom number. That is 138/86, which exceeds the top-class limit but falls within the next class.

Result: the next class at $34 a month instead of the top class at $28.

The arithmetic: the difference is $34 - $28 = $6 a month, or $72 a year. Over 20 years it is $72 x 20 = $1,440.

What Tomás can do: nothing to the reading itself, but a few things around it. His doctor's records may show normal readings over years, which can be offered to the underwriter. He can ask the agent whether reconsideration is possible with a home log and recent clinic readings (see the reconsideration guide). He can also think about the exam conditions in advance: caffeine, a rushed arrival, a full bladder or a recent hard workout can all push a number up. The post on exam day mistakes that can skew life insurance test readings lists them. For the general picture on blood pressure and underwriting, see life insurance with high blood pressure.

The lesson: a single number can set the class when the guide treats it as a hard limit, and the number may not represent the person.

Case 2: Hana and her father's heart attack

Hana, 41, has a normal weight, excellent lab values, normal blood pressure, a clean driving record and no tobacco use. Her father had a heart attack at 54 and survived into his late 70s. Her mother is healthy.

Under the invented guide, the top class requires that no parent was diagnosed with heart disease before 60. Hana's father was 54 when he had his heart attack, so the top class is out of reach. The next class only excludes a parent diagnosed before 50, so Hana qualifies for it.

Result: the next class at $34 a month instead of $28. Hana is three years older than Tomás, so say her prices are $30 and $36. The difference is $36 - $30 = $6 a month, or $72 a year, and $1,440 over 20 years.

What Hana can do: she cannot change her father's history. She can, however, see whether other insurers read it differently. Family history rules vary: some look only at deaths, some at diagnoses, some at the age and the number of relatives affected. A single event in one parent is treated more lightly than several relatives with the same condition. See how family medical history affects life insurance. She should also list the facts completely, including that her father lived many years afterward, since details such as that can affect how the entry is read.

The lesson: some factors are fixed. The only lever is the choice of insurer, which an agent can help with.

Case 3: Greg and one driving citation

Greg, 35, is in excellent health, with normal weight, normal labs and no medication. Two years ago he received a reckless driving citation. He has had no other tickets.

Under the invented guide, the top class allows no serious driving citations in the last three years. Greg's citation is two years old, so it is inside the lookback. The next class allows one.

Result: the next class, at $34 a month, rather than the top class at $28, which is $6 a month more.

The option to wait: the citation will age out of the invented three-year window in one year. If Greg waits 12 months to apply, he may qualify for the top class. But he will be a year older, so his price will be higher in either class. Suppose the top class at 36 is $30 a month. Applying now costs $34 a month. Applying after the lookback ends costs $30. The saving is $4 a month, or $48 a year, but the wait has a cost: a year without the policy. The decision depends on whether his family needs protection now, and the answer for a parent of young children is usually that it does.

A middle path is to apply now, accept the next class, and ask the insurer about reconsideration once the citation ages out (see asking for a better rate class later). Not every insurer does this on request, so ask before relying on it. The guide on how your driving record affects life insurance explains how lookback periods and violations are treated.

The lesson: some entries fade with time, which turns a class question into a timing question. Time costs coverage, so weigh both.

Case 4: Pete and two pounds

Pete, 44, is 5 ft 9 in, matching the row in the invented guide. He is fit, and his labs and blood pressure are excellent. At the exam he weighs 190 lb on the examiner's scale. The invented top-class limit for his height is 188 lb.

Result: the next class, at $34, instead of $28.

The arithmetic: 190 - 188 = 2 pounds over. The $6-a-month difference is $72 a year, $1,440 over 20 years, for two pounds.

Why it happens: build chart limits are hard lines, and two pounds is only about one percent of 190, yet it crosses the line. Weights vary by a few pounds over a day, by clothing and by scale. A morning weight might have been 187. That does not make the examiner's reading wrong; the underwriter uses what was recorded.

What Pete can do: if he is within a pound or two of a limit, discuss with the agent whether to reschedule or request a recheck, since a rescheduled exam may give a different number. He can also ask whether the insurer uses a different chart. The post on athletes, muscle mass and why build charts can misjudge you explains why muscular people can be misjudged by charts. Losing a few pounds can move a build to the next bracket, but he should not make a drastic change purely for an application. The guide on life insurance, weight and build charts has more on charts.

The lesson: a hard limit does not care how close you are. The edge cases are where exam-day measurement matters.

Why the line is drawn where it is

It can feel arbitrary that two pounds or a few points of blood pressure should cost money. The reasoning behind a hard line is statistical, not personal. An insurer prices each class as a group. It estimates how many members of the group will die during the term and sets a premium that, across the whole group, covers the claims and expenses. The best class is priced on the assumption that its members are, on average, the lowest-risk applicants. If the insurer admitted people just outside the limit, the group's average risk would rise and the best-class price would have to rise for everyone in it.

Someone just on the wrong side of the line is almost the same risk as someone just on the right side. Both of those facts are true at once: the line is somewhat arbitrary for any one person, and some line is unavoidable for the group. It explains why insurers differ. Each draws its lines using its own data, its own reinsurers' views and its own appetite, which is the reason a person who misses one company's top class by a hair may clear another's with room to spare.

It also explains why some insurers use credits and debits. A scoring approach smooths the cliff edge: a person who is slightly over on one factor and well under on another is treated as an overall good risk. If your agent says one company is "more forgiving" on a factor, this is often what they mean.

When a lower class is still a good outcome

A drop of one class is not a failure. The offer is still a fully underwritten, level-premium policy from a company that judged you an acceptable risk. Depending on your situation, these points may help you keep perspective.

• The price difference is a few dollars a month in the examples. It is worth pursuing, but not worth abandoning an application that your family needs.
• Many applicants get the second or third class. The best class is deliberately the hardest to reach.
• An accepted offer can be revisited. Some insurers will look at a request for a lower rate after health or habits change, which is covered in the guide on asking for a better rate class later.
• A decision to decline the offer is yours. You are not obliged to accept a policy at a class you think is wrong, but you should have a better plan than waiting indefinitely.

The classes also matter differently at different ages and amounts. For a young person buying $250,000, a one-class drop might be a couple of dollars a month. For someone in their 50s buying $1 million, the same drop can amount to a much larger sum over the term. Run the arithmetic with your own quotes, as the examples do.

What the four cases have in common

In all four, the cost was $6 a month. That is not a large sum in a month. Over a 20-year term, though, it is $1,440 for each person, and if the drop is two classes instead of one the number grows. This is why the class matters and why it is worth knowing which factor decided yours.

What to do when you are one factor away

1. Ask which factor set the class. The agent can often find out. If you are given a lower class than quoted, ask what held you back (see a lower rate class than quoted: accept, negotiate or walk away for the accept, negotiate or walk away decision).
2. Check whether it is an error. A wrong entry in a database, such as a driving record or prescription report, can be corrected. See questions about disputing a wrong entry in your underwriting file.
3. Separate fixed factors from movable ones. Family history is fixed. A reading, a weight or a citation may change.
4. Compare insurers before you apply. Different companies have different limits for the same factor. The post on informal inquiries: testing an insurer's view before you apply describes how an agent can test this.
5. Do the arithmetic for waiting. Compare the monthly saving to the cost of the gap in coverage and the higher base price that comes with age.
6. Consider a longer horizon. If you cannot improve a factor now, a review later may be possible. The plan in a 12-month plan to qualify for a better life insurance rate class lays out what moves and what does not.
7. Keep honest. Do not leave out the factor that would drop you. It will be in the records, and a misstatement costs far more than a class.

Key takeaways

• A rate class is often set by the weakest factor on a strict-limit scale, so one reading, one history item or one citation can lower it even when the rest of the profile is excellent.
• Some factors can change with time or measurement (readings, weight, citations), while others are fixed (family history).
• In the invented examples, a one-class drop cost $6 a month, or $1,440 over a 20-year term, which is the scale of what is at stake.
• Different insurers set different limits, so the choice of company can matter more than any effort to adjust the profile.
• Ask which factor set the class, check it for errors, and weigh the cost of waiting against the cost of the higher class.