We understand that life insurance underwriting can be confusing. Worse yet: you must determine your client’s underwriting class before you can even begin a quote! The wide world of underwriting does not have to remain a mystery, however. Simply put: life insurance underwriting is the process of a carrier determining how likely your client is going to die while the policy is active. This is also known as a client’s mortality risk. Life insurance carriers group people with similar mortality risks into categories called “rate classes.”
Rate classes include:
- Preferred Plus
- Standard Plus
- Substandard (less than standard, also known as Table Ratings)
If your client has an average mortality risk – meaning they are as likely to die as the average person their age & sex – he/she will be placed in the “Standard” rate class. If your client has an above-average mortality risk (i.e., less likely to die), he/she can receive a Preferred Plus, Preferred, or Standard Plus rate class. If your client has a below-average mortality risk (i.e, more likely to die), he/she can receive a substandard rating or be declined for coverage.
So the healthier my client is, the better the rate class?
Well, mostly yes. Health, including medical history, height/weight, and prescription usage, plays an important part in life insurance underwriting because clients in poor health are more likely to die. However, health is only one part of life insurance underwriting.
Other components of underwriting include your age and sex. I hate to break it to you: the older you are, the more likely you are to die. Males are also a higher risk than females, because of females tend to have a longer life expectancy.
Carriers will also evaluate your clients’ family history, because certain hereditary diseases can impact mortality. Moreover, your clients’ lifestyle has a direct association with his/her rate class. Certain occupations and hobbies, such as scuba diving or rock climbing, are inherently riskier than others. Tobacco usage and excessive alcohol drinking also have an impact on your clients’ mortality as well, because both can lead to health conditions that result in death. Other risk factors life insurance carriers look at are driving history, finances, criminal history, and travel.
How do rate classes affect the premium my clients pay?
The less likely your client is going to die, the better the risk for the carrier. The better the risk for the carrier, the better the rate class. The better the rate class, the lower the premium your client will have to pay. A Preferred 45-year-old female will pay less for the same amount of coverage than a Standard 45-year-old female.
My client received a Standard rating from Carrier A, will Carrier B give them the same rate class?
It depends, because all life insurance carriers underwrite differently. For example, some carriers can be more forgiving for medical history or lifestyle habits than others. With this in mind, knowing as much about your client as possible before applying is incredibly helpful – we can use the information to determine which carriers can potentially give your clients a more favorable rating class.
What if the underwriter gives my client a different rate class than what I quoted?
The underwriter ultimately has the final say in the rate class your client receives. If the actual rate class is worse than what you quoted – for example, you quoted Preferred and your client received Standard – your client will have to either pay more than the quoted amount or reduce the amount of coverage. Conversely, if your client receives a better rate class than what you quoted, your client will be charged less premium for the same amount of coverage.
With that being said, we highly advise trying to get an accurate quote for the client. Also, it does not hurt to err on the side of caution. For example, say you quote a client as Preferred Plus with a $25 monthly premium. You submit the application, and the underwriter determines that your client is a Standard risk – and the premium is actually $40 a month. Now you must return to the client and tell them that their life insurance is going to cost more than what you initially said – not very conducive to the sales process. Now consider the inverse: you quote a conservative Standard rating, and the underwriter comes back with a Preferred decision. Now you get the opportunity to return to the client with great news and say that their premiums are now less than originally expected.
That brings up a very important topic: expectations. It is important that you set realistic expectations with your client before the application. Your client should understand that the rate class you quoted is not set in stone and will ultimately be determined by the underwriter. When you set these expectations with clients, they will be less likely to react negatively if they receive an unexpected rate class decision.
How do I ensure I use an accurate rate class when quoting?
Again, knowing as much about your client as possible is very helpful. The process of learning about your clients’ specific situation to determine his/her rating class is called “field underwriting.” Field underwriting can be as simple as asking your clients questions or it can include completing detailed questionnaires. Also, feel free to refer to carriers’ underwriting guides, which are available on the Term & Universal Life quote engine and on each life insurance product’s page on The Brokerage, Inc. website.
As an insurance agent, it is beneficial to understand the underwriting process, but you do not have to be experts. If you are unsure of how to quote a client, do not hesitate to reach out to us for guidance. Often, we can reach out to underwriters on your behalf before the application to get a better idea of how we should quote the case. Please do not hesitate to reach out to us with any questions or concerns you have about the underwriting process!
Joel Flores | Life Insurance Specialist