Q&A: Rated Premium Insurance

August 7, 2008

SOURCE: InsuranceNewsNet, Inc.

QUESTION: What is rated premium insurance?

ANSWER: Rated premium insurance is a policy that is the same as other policies but its rate is higher than the standard premium rate. When an insurance provider issues a rated policy, it means the underwriter has determined that the applicant presents a greater risk and therefore has a higher probability of filing a claim. The result of this risk is an additional premium.

Q: What is the difference between a rated premium and a non-rated premium policy?

A: The higher premium is the only thing that differentiates rated policies from non-rated policies. All the benefits remain the same and are not affected by the rating. Most types of insurance such as disability, life, health and long-term care have rated insurance policies.

Q: What are the factors that may lead to rated premium insurance?

A: The majority of applicants get a rated premium policy because of health issues, but some are rated because of their occupations or the activities that they engage in.

Health-related factors include:

• Age - specifically applicants over the age of 67.
• Smoking and tobacco use during a specified period, such as the previous 12 months.
• Heavy use or a history of heavy use of alcohol or drugs.
• Obesity or being overweight
• Family history of early deaths or specific diseases
• High blood pressure, blood sugar or cholesterol levels

Other factors:

• Engaging in extreme sports like scuba diving or rock climbing
• Risky jobs such as race car driving
• Having received too many speeding tickets

Q: How much is the difference in the premium of rated and non-rated policies?

A: The extra premium charged for rated insurance depends on the degree of risk involved. In certain cases the cost of a premium can be five to ten times higher than the standard premium.

Q: How is the level of the rated premium determined?

A: Tables 1 to 10 (or A to J) are used to rate an applicant’s risk. Each rating is organized by a table number or letter: the higher the number or letter, the greater the risk and the premium. An applicant with a slightly higher-than-average risk may have a table 2 or table B rating. An applicant with much higher risk may get a rating of Table 7 or Table G.

Q: When is the rating made?

A: Generally, ratings are made during the pre-qualification process. However, if an applicant was not adequately pre-qualified, he or she may receive an unexpected rating when the underwriter uncovers pertinent information that was not given by the applicant or the broker during the pre-qualification process.

In certain instances, the underwriter discovers information in the applicant's medical records or new findings based on the lab results of an insurance medical exam that affects his or her rating. Unexpected ratings may also be given if new information surfaces during the formal underwriting process.

Q: What is the best way to handle an application when the client is likely to get a rated policy?

A: Different insurance companies have varying rating criteria. It is possible to get different classifications from different insurance companies. Getting multiple quotes for the client is also a good strategy because two comparable providers may interpret the client’s medical history differently.

The producer could recommend companies that use more liberal underwriting to avoid getting a rated policy or at least lower the rating. Some providers offer more competitive premiums for specific risks as well.

In addition, rated premium insurance may not be permanent. In some cases the insurance company will offer to remove the rating if the risk no longer exists. For example, the client stops engaging in high risk sports activities or has switched to a less dangerous job.

If the risk is due to a non-permanent health condition, the rated policy may be reduced or eliminated after the client shows good health and is symptom-free for a specified period. Quitting smoking may also have a beneficial effect on the cost of premium eventually since companies often offer lower rates to nonsmokers. Losing weight and adopting a healthy lifestyle may also favorably affect the client’s rating.

If the risk is due to alcoholism, the client may be upgraded to a standard policy if he or she remains alcohol-free and is in good health after five years of undergoing treatment from a rehabilitation center.

Q: What is the wrong way to handle an application when the client is likely to get a rated policy?

A: Encouraging the client to lie or to conceal information is the worst possible thing to do. It is very important for clients to provide complete and accurate information on all insurance applications. Even if the attempt to avoid getting a rated policy succeeds, insurance providers have the right to deny benefits and claims when they learn that the client failed to disclose any pre-existing conditions.

Q: What if the client cannot afford the rated premium?

A: Experts say canceling the policy is not a good option. Instead, the agent can recommend a policy with a lower coverage or benefits to bring down the rated premium.

Unlike bigger companies, some smaller insurance companies may actually offer a standard premium or a premium with a lesser rating. However, the producer should ensure that the company has sound claims-paying ability.

If the client is employed, he or she may be able to purchase term insurance or group universal life insurance through an employer. These policies often provide guaranteed approval and require only a few simple health questions. Group policies may also be available through associations.

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