Ratings, Preferred Rates and Smoker Premiums on Insurance Policies
Getting preferred rates, rated or being a smoker can increase or decrease your premiums in Canada
How do life insurance companies price their insurance products? Why are there standard rates, preferred rates and rated policies for sub-standard risk (that means people in somewhat poor health)? Why is there such a big difference between smoker rates and non-smoker premiums?
In this article I will try and explain how and why insurance companies have a varying range of premiums for life and health insurance products. There are some good tips to help you qualify for discounted preferred rates, and there are some guidelines on how certain medical conditions cause a rating. Know how your lifestyle, health and some dangerous sports might affect your insurance premiums.
Preferred Rates – discounts for good health
If you are in very good health you might qualify for preferred rates. Most insurance companies offer preferred rates on their term life insurance plans. A few offer preferred rates on permanent life insurance like universal life insurance and whole life insurance. There are usually two levels of preferred rates, and every company has a different name for them. It could be healthstyle 1 and 2, preferred and preferred plus, diamond and platinum, etc. For the purposes of this article we will call them preferred and super preferred rates.
In order to qualify for preferred rates you would need to be in good health, better than average, and have good family health history and a clean driving record. Here are some guidelines on the qualifications for preferred rates:
- Height: 5’6” Weight: 182 lbs or less
- Height: 6’0” Weight: 225 lbs or less
- Blood pressure: age 30, 130/80; age 40, 135/80; age 50, 140/85; age 60 and up, 145/90
- Cholesterol/HDL ratio: age 30, 210/5.0; age 40, 210/5.5; age 50 and up, 235/6.0
- Tobacco use: none in last 2 years
- Family history: no heart disease or stroke before age 65.
- Good driving record: no more than 2 or 3 moving violations (speeding tickets, running a red light, etc.) in the last 2 years.
To get super preferred rates it gets even more difficult. You have to be in VERY good health and have excellent family history and a squeaky clean driving record. Here are some rough guidelines for super preferred rates:
- Height: 5’6” Weight: 171 lbs or less
- Height: 6’0” Weight: 210 lbs or less
- Blood pressure: age 30, 125/75; age 40, 130/75; age 50, 135/80; age 60, 140/85; age 70 and up, 145/90
- Cholesterol/HDL ratio: age 30, 200/4.5; age 40, 200/5.0; age 50, 220/5.5; age 71 and up, 300/6.0
- Tobacco use: none in last 15 years
- Family history: no cancer, heart disease or stroke before age 65.
- Good driving record: no more than 1 moving violations (speeding tickets, running a red light, etc.) in the last 2 years.
If you can meet these health guidelines, you could qualify for preferred or super preferred rates. Otherwise you will get the standard rate. Fewer than 30% of Canadians can qualify for preferred rates.
Rated policies – why do some people pay more and how much could it be?
For some people who are living an unhealthy lifestyle or have contracted a disease they might still qualify for an insurance policy, but their rates will be increased. Basically, how this works is the insurance company can make an offer to insure the client and propose a premium increase above the standard price. It is then the client’s choice to accept the increased premium or decline it. Clients can always try and qualify for better insurance rates with other life insurance companies, as some companies regard certain health conditions differently. If you know or suspect you would be rated for insurance, it is best to contact an insurance broker and have them shop the market with your condition first, to see which insurance company is most likely to accept you application and what the premium would be.
Ratings are priced as a percentage of the standard rate. Standard rates for insurance are considered 100% of the premium. A rating of 150% would mean you are paying 50% more than the standard rate; a 200% rating would mean double premiums, etc. Unfortunately, if the medical condition is very bad, the insurance company could decline your application. Here is a list of common conditions, and how they would probably be treated by an insurance company:
- Asthma: mild symptoms, standard rates; moderate asthma, 150 – 200%; severe, 250% to a decline.
- Cancer: would be postponed for 3 – 5 years after treatment before being allowed to apply for insurance. Depending on the type of cancer, you would probably pay 150% in a best case and up to 250% of standard rates. Very likely there would be a decline if the cancer is not in full remission.
- Diabetes: Type 1 (Insulin dependent), best case 200%, typical 250% and worst case decline. Type 2 (non-insulin dependent/adult onset diabetes), best case standard rates, typically 150%, worst case decline.
- Heart Attack (Coronary Artery Disease): can’t be considered for at least 6 months from the date of the heart attack. Best case – under age 50; 250% rating, 50 – 69, 200%; 70 – 85, 150%. Worst case – under age 50, 275 – 400%; 50 – 69, 200 – 350%; 70 – 85; 150 – 200%.
- Hypertension (high blood pressure): most cases where it is controlled with medication and monitored by the doctor, it can be standard.
- Stroke: would be postponed for at least 12 months from the stroke onset. For just one stroke, well worked up and minimal residuals, 150 – 200% rating. Multiple strokes are declined.
- Being overweight: minimum 125% rating, and up to 350% of standard rates or decline for being severely obese.
There are also some sports or avocations (occupations or hobbies that people do) that could cause a rating on a policy. Without getting into too much detail, here is a brief list of non-medical risks that could cause a rating on an insurance policy: aviation (flying); climbing rocks, mountains or ice; poor driving record or motorized racing; foreign travel to dangerous countries; scuba diving; parachuting/sky diving and BASE jumping; etc. Ratings for these activities are usually a dollar multiple extra, like $2.50 per thousand per year. For this sort of rating, on a $500,000 policy, you would have to pay a flat extra premium of $1,250 per year to get the insurance. Flat extras could go as high as $10 – $15 per thousand.
Smoking Status – another cost for a lifestyle choice
In Canada, just under 20% of the population smokes. This is good news because the majority of Canadians can get their insurance with non-smoker rates. So, what is considered a non-smoker? To be clear, an insurance company would consider you to be a non-smoker if you have had NO form of tobacco or nicotine product for at least 12 months. That means no chewing tobacco, no cigarettes, no nicotine quit smoking products like the patch etc. Many insurance companies will allow people to smoke a few large cigars per year for fun and still get standard rates. It usually allows 1 per month or 12 per year, like a large Cuban cigar. More than that and you are a smoker.
A smoker can expect to pay 50 – 75% higher premiums when they are younger (below age 45). As they age, smoker premiums continue to go up, plus 100% and even 150% higher than standard non-smokers. This is because the complications accompanying smoking usually happen into the 50s and 60s, as years of smoking compounds the damage to the lungs and increases the risk of things like lung cancer and heart disease. If a smoker owns a life insurance policy and then quits smoking, the premiums can usually be reduced to non-smoker rates if they can totally quit tobacco and all nicotine products for 12 months.
Once a person owns a policy as a non-smoker, even if they take up the habit a few years later, the premiums on that insurance policy cannot be increased by the insurance company. So, if you are an on again, off again smoker, get your life and health insurance when you have been off cigarettes for 12 months, and lock in your non-smoker rates.
Having smokers pay a higher premium for life and health insurance protects us all. Everyone knows the risks associated with smoking. It is a lifestyle choice which has a lot of cost. The price of cigarettes is very high, and the costs of health problems can also be financially damaging. If smokers and non-smokers had a common or blended insurance premium, non-smokers would be heavily penalized for a lifestyle choice they did not make. Therefore the two groups are separated into different price categories.
Some insurance companies offer “preferred” smoker rates to reflect a smoker who is in otherwise good health. These rates are still higher than a standard non-smoker, but not too much higher.
Ask Life Guard Insurance about preferred rates, ratings and smoker premiums
If you would like more information on preferred rates, rated policies or premiums for smoking status, please feel free to contact us at Life Guard Insurance.
The article was written by Mitch Reynolds+. If you found this article interesting or it made you think, please feel free to share your comments below. Liking us on Facebook, giving us a +1 on Google or Tweeting this article about ratings, preferred rates and smoker premiums would also be very much appreciated.