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How do Insurance Rating Classifications Work?

Insurance companies calculate their premiums based on multiple risk factors for their insureds. Customers who are considered to be high risk will pay the highest rates, and those who are least likely to use their coverage will pay the lowest rates. This pricing technique is standard throughout all types of insurance, and it’s used by life insurance companies to determine how much a customer should be charged or whether a customer might qualify for a policy at all.

Life insurance providers divide their applicants into several different rating classifications. The specific names of these classifications vary from one company to the next, but some common classifications are Super Preferred, Preferred and Standard. Applicants who fail to meet the criteria for a Standard classification will usually not qualify for life insurance through that company but may qualify for a different company.

Some insurance companies will require that the applicant undergo a physical examination before a policy can be offered. Others require only that the applicant provide medical records from his or her own doctor. In any case, the price offered by an insurance company will depend upon the insured’s own habits and rating classification; no two customers will pay exactly the same premiums.

Certain basic tendencies will affect what rating classification a particular customer will receive:

– Whether any members of his or her immediate family died of cancer or heart disease before age 60
– Whether the insured has any existing medical conditions
– Whether the insured smokes or chews tobacco
– Whether the insured is considered to be overweight
– The insured’s blood pressure and cholesterol levels
– The insured’s recent driving history
– Any high-risk leisure activities the insured partakes in
– Whether the insured has a particularly dangerous job
– The insured’s current age

This information will be gleaned from the insured’s application and medical records in addition to a health exam where required. Depending on the insurance company, the rating assigned to a specific behavior may vary. For example, some companies rate all tobacco users as Standard regardless of how much tobacco they use. Others classify occasional cigar smokers as Preferred while frequent smokers will be Standard. Still others will not insure smokers at all.

Because there is so much variation in the way different insurance companies assign their rating classifications, it’s important to shop around among multiple companies. One company may find you to be a much lower risk than another might due to the weights given to various elements of the rating scale. Even if you receive the same rating from multiple companies, the premiums may vary substantially. This makes comparison shopping the only way to ensure you get the best possible life insurance rates.

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