March 15, 2018
When using the Life Insurance Quote Comparison Tool on MoneyTips, you can see multiple carriers and rates. Daily, we receive new applications for life insurance through this channel. When I see a new application, I know that an intelligent person has made a choice to get coverage, and that they likely did some investigating before making that choice.
What is curious is how, after all of the research, one frequent issue tends to remain. Consumers approaching a life insurance purchase want to know their cost up-front, but a risk assessment is necessary before getting to the final cost for life insurance. Carriers therefore provide initial quotes based on brackets, which are called rate classes. Then, they assess the risk to find out which bracket or rate class the applicant qualifies for: Preferred Best, Preferred, Standard Plus, or Standard. Usually, either the applicant fits into one of those rate classes or the application is declined.
Allow me to go over the details in a bit more depth. What some consumers find confusing, as they move through the steps of purchasing coverage, is the difference between what a quote tells them, and what rate classes don’t tell them. A quote is not a predictor of what you’ll be approved for. Approvals come in the form of the four rate classes, which are brackets for pricing based on one’s mortality – as assessed by a carrier. They assess your mortality by looking at blood and urine samples, medications that you take, conditions that may exist, etc. When you obtain an initial quote, the carrier does not know all these specifics, so while Preferred Best rates are less expensive, there is no guarantee that you qualify for that rate class at the time of the quote. While some determining factors are known as they appear on the application, some items that affect the approval may only be discovered later.
To know what rate class you qualify for would require some learning on your part. Alternatively, I could ask questions based on my experience and carrier underwriting information that can help confirm it for you. The quote cannot take into account certain unknowns. Some things in the exam samples and/or in the medical or DMV records can render initial assessments less meaningful. The approval that is to come will consider those unknowns.
For example: you get a quote, and choose the least expensive rate class. You know that you are a little overweight, but you decide to just do it and see what happens. At the same time, you begin banking on that $35 Preferred Best premium, which is accurate to the penny – but it will only apply to you if you qualify for that rate class. Preferred rates have you at a premium of $42. The Standard Plus premium will be $47, and so on. The carrier does what they do, and let’s say that you are approved at Standard Plus. Hmmm.
Attached as you are to the Preferred Best rate class premium, you are a bit disappointed by the price increase, not to mention kicked to the curb by the less-than-Preferred conclusion. You ask why you didn’t get the Preferred premium, and they tell you that you are slightly overweight and your cholesterol readings are abnormally high. Uh oh. You already knew about the weight, but the cholesterol thing is news to you. You take your copy of the lab slip to your doctor on the advice of the seasoned insurance advisor, Kirby Thomas. Your doctor confirms the cholesterol readings. Do you accept the policy or go without coverage now that you know you’ll have to pay more than you thought?
Your options: you applied for $700,000 of coverage, but now that you’ve been approved for the less preferable rate class, you may decide to reduce your coverage to offset the higher premium.
- Option 1: you lower the face amount of insurance and pay a $35 premium for less coverage.
- Option 2: you keep the face amount the same, but decide to pay annually instead of monthly to save some dollars. Remember, a monthly rate x 12 does not equal the annual rate. The annual rate is the least expensive way to pay for a plan over, say, 20 or 30 years. On 20-year plans, you save about 12 months’ worth of premiums if you pay annually instead.
- Option 3: you can get what you want, but you may have to work with your advisor to tweak things or find hidden ways to win. We take your case to other carriers to get approved for a better rate class, if it is possible to get a better rate class at all.
Quotes tell you the accurate price for coverage. Rate classes, of which there are several, do not offer obvious clues as to what you qualify for. Even when you have assistance from your insurance agent to get to the right rate class, it may be that your exam and medical history point to a different rate class. While this may be confusing when you want to know the price of your insurance up-front, remember that the best way to get concrete cost information is to apply with an A-rated, low-cost carrier, and obtain approval. At that moment, you will have precise pricing information. Then, you’ll know your options to reduce cost if things didn’t work out as you expected.
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