insurance-umbrellas-man

All life insurance products are priced so that no matter what age a person is when they buy, everyone in the same underwriting class pays the same price.

Here’s how to explain that to clients.

Q. What’s an underwriting class?

A. Think of smokers: they’re categorized into subsets by how often they smoke; how many times a day they smoke; and what they smoke (e.g., cigarettes, cigars, pipes or marijuana).

Read: Dads aren’t savvy about life insurance

Q. Am I subsidizing anyone when I pay my premiums?

A. No. Life insurance is designed to pool risk, and each pool member pays his or her fair share. An applicant’s share is based on the assessment of:

  • Age
  • Gender
  • Health (current and historical)
  • Lifestyle (e.g., use of drugs and alcohol, criminal infractions like speeding tickets)
  • Family health history
  • Whether applicant plays dangerous sports
  • Hobbies
  • Occupation
  • Travel patterns (e.g. to war torn countries or countries on the prohibited list)

Read: Life insurance in the age of DNA testing

Q. How do I know someone won’t sneak into the pool?

A. The insurance company has the right to refuse to allow a person into the pool if her risk factors are deemed too high. The life insurance pool comes with a guarantee to pay, provided the conditions of the contract are met.

Read: Clients must disclose risky hobbies

Q. What jobs might increase my premiums?

A. These include, but are not limited to, fisher, logger, garbage and recycling collector, airline and private pilot, steel worker and bartender.

Helena Smeenk Pritchard has over 36 years of experience in the insurance industry and is the Principal of Helena Smeenk Pritchard & Associates, a leader in “Insurance Know-How” training. Helena publishes a weekly free ‘Did You Know’ newsletter on her site.

Originally published on Advisor.ca
Add a comment

Have your say on this topic! Comments are moderated and may be edited or removed by
site admin as per our Comment Policy. Thanks!

See all comments Recent Comments

AMI.MAISHLISH

Helena, you wrote:
[
Q. What’s an underwriting class?

A. Think of smokers: they’re categorized into subsets by how often they smoke; how many times a day they smoke; and what they smoke (e.g., cigarettes, cigars, pipes or marijuana).
]

Tobacco and associated substance consumption is one significant element in the determination of the “Underwriting Class”, though one of several notable elements. Personal health, incl. height/weight ratio, personal health history, vocation, avocation, etc. all are important and notable in the determination of underwriting class.

Relating to tobacco and related substance consumption, you state that “they’re categorized into subsets by how often they smoke; how many times a day they smoke;”. While these factors may play some part in some cases, the more important parts are when was the last time that they smoked and what they smoked or smoke. In most cases, even a single cigarette per month will render the person as a smoker. That “smoker” may be deemed as “preferred” if all else is “super”, but nevertheless as a “preferred smoker” rather than a preferred “non-smoker”. Moreover, a person who quit the habit entirely just over a year ago, may not qualify as a “preferred non-smoker” for certain products.

In a nutshell, the permutations are many and the advisor needs to be careful and not make universal assumptions.

Monday, Sep 9, 2013 at 6:11 pm Reply