Risk Classification

Risk classification assigns applicants to rate classes based on mortality risk, ensuring premiums reflect the level of risk while maintaining equity across the risk pool.

Standard Risk Classes

Preferred Plus (Super Preferred)

Best risk class: - Excellent health: No health issues - Optimal build: Ideal height/weight - Non-smoker: Never smoked or quit 5+ years - Good family history: No early deaths from heart disease/cancer - No hazardous activities: Safe occupation and hobbies - Excellent labs: Blood pressure, cholesterol, glucose all optimal

Premium: Lowest rates (30-40% below standard)

Preferred

Very good health: - Good health: Minor issues controlled - Good build: Slightly overweight acceptable - Non-smoker: Required - Controlled conditions: Minor issues (e.g., controlled hypertension)

Premium: 10-20% below standard

Standard

Average risk: - Average health: Typical person - Minor issues: Controlled conditions - May be smoker: Separated into smoker/non-smoker rates - Normal build: Slightly above/below ideal

Premium: 100% of standard rate

Example rates (40-year-old male, $500K):

Preferred Plus Non-Smoker: $500/year
Preferred Non-Smoker: $650/year
Standard Non-Smoker: $800/year
Standard Smoker: $1,800/year

Substandard (Rated) Classifications

Table Ratings

Percentage increase above standard:

Letter or number system:

Standard: 100% (A or 1)
Table B (2): 125%
Table C (3): 150%
Table D (4): 175%
Table E (5): 200%
Table F (6): 225%
Table G (7): 250%
Table H (8): 275%
Table J (9): 300%

(Note: Skip letter "I" to avoid confusion with number "1")

Example calculation:

Standard premium: $1,000/year
Table D rating (175%):
$1,000 × 175% = $1,750/year

Increase: $750/year

Flat Extra Premium

Additional dollars per $1,000 of coverage:

Used for: - Hazardous occupations - Dangerous hobbies - Temporary risks

Calculation:

Standard premium: $1,000
Flat extra: $5 per $1,000
Face amount: $500,000

Flat extra cost:
($500,000 ÷ $1,000) × $5 = 500 × $5 = $2,500

Total premium: $1,000 + $2,500 = $3,500

Temporary flat extra: - Applied for 5-10 years - Then removed - For conditions expected to improve

Example:

Recent surgery, full recovery expected
$3 per $1,000 for 5 years
Then standard rates

Year 1-5: Standard + $1,500 flat extra
Year 6+: Standard only

Combination Rating

Table rating + flat extra:

Example:

Applicant: Controlled diabetes + commercial pilot

Diabetes: Table C rating (150%)
Aviation: $4 per $1,000 flat extra

Standard premium: $1,000
Face amount: $250,000

Table C: $1,000 × 150% = $1,500
Flat extra: ($250,000 ÷ $1,000) × $4 = $1,000

Total: $1,500 + $1,000 = $2,500/year

Factors Affecting Classification

Age

Older = higher premium: - Mortality increases with age - Premium doubles roughly every 10-15 years

Gender

Females live longer: - Lower premiums (10-20% less) - Better mortality experience

Smoking Status

Smokers pay 2-3× more:

Non-smoker: $800/year
Smoker: $1,800/year (225% more)

Quit requirements: - 12 months nicotine-free minimum - 3-5 years for best rates

Health/Medical History

Impact varies: - Well-controlled conditions: Standard to slight rating - Uncontrolled: Substantial rating or declined

Build (BMI)

Obesity ratings:

BMI 27-29: Standard
BMI 30-34: Table B-C
BMI 35-39: Table D-F
BMI 40+: Declined

Family History

Early deaths matter: - Parent died before 60 of heart disease/cancer - May prevent preferred class - Usually doesn't cause rating

Occupation

Hazardous jobs:

Office worker: Standard
Commercial pilot: Standard to slight rating
Test pilot: Substantial rating
Underground miner: Rated or declined

Avocations (Hobbies)

Dangerous activities:

Recreational scuba: Standard
Skydiving: Flat extra or exclusion
Racing: Flat extra or declined
BASE jumping: Declined

Declined (Uninsurable)

Reasons for decline: - Terminal illness - Recent heart attack/stroke - Uncontrolled severe conditions - Substance abuse - Extreme obesity (BMI 45+) - Moral hazard

Adverse action notice: - Must notify applicant - Provide reason - FCRA requirements - Right to see reports

Smoker vs. Non-Smoker

Separate rate classes:

Non-smoker qualifications: - No nicotine products 12+ months - No cigarettes, cigars, pipes, chewing tobacco - No vaping (most companies)

Smoker rates: - All tobacco users - Marijuana users (some companies) - Recent quitters (< 12 months)

Rate differential:

Typical impact:
Non-smoker: $800/year
Smoker: $1,800/year

Difference: 125% more

Unisex Pricing

Some states require: - Montana requires unisex rates - Same premium regardless of gender - Average of male/female rates

Rate Guarantees

Level premiums: - Whole life: Guaranteed level for life - Term: Level for term period - UL: Depends on interest/COI

Annual renewable term: - Increases each year - Based on attained age

Key Exam Concepts

Risk classes: Preferred Plus, Preferred, Standard, Substandard, Declined
Preferred Plus: Best class - excellent health, non-smoker, optimal build
Standard: Average risk, 100% of standard premium
Table rating: Percentage increase (B=125%, C=150%, D=175%, etc.)
Flat extra: Additional $ per $1,000 of coverage
Temporary flat extra: Applied for 5-10 years, then removed
Combination rating: Table rating + flat extra
Smoker rates: 2-3× higher than non-smoker
Non-smoker qualification: 12+ months nicotine-free
Age factor: Premium increases with age
Gender: Females pay less (better mortality)
BMI impact: Obesity rated (BMI 30+ typically rated)
Declined: Terminal illness, severe uncontrolled conditions
FCRA: Adverse action notice required when declined

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