When it comes to term life insurance, changing jobs, getting healthier and adopting new hobbies can all work to your advantage. Those are some of the criteria insurance company actuaries use to decide how high your premium should be.
Term life insurance gives your beneficiary a predetermined death benefit if you die within a certain period of time, usually 10, 20 or 30 years. Annual premiums depend on the classification you're assigned.
"Classifications are pools of policyholders who represent different levels of risk," says Chad McCloskey, president of Vivo Livre, a financial planning and consulting firm in Newbury Park, Calif. "The more risk you represent, the worse your classification will be and the higher your premium."
Standard and preferred had been the only term life insurance classifications and now are largely universal, although different insurance companies have their own vernacular. Still, many factors affect which underwriting classification you're assigned.
"Many companies have ultra tiers like super preferred and preferred plus, and use names like Table 2 or Table A for the less favorable classifications," says Adam Sherman, CEO of Firstrust Financial Resources in Philadelphia. "More classifications exist now because of the competitiveness of the market."
What affects your classificationGuidelines used to determine your term life insurance classification include age, tobacco use, height, weight, family history, and cholesterol and blood pressure levels. Other guidelines are driving record, hazardous occupation or activities, military service, foreign travel or residency, felony criminal activity, and whether you have heart disease, diabetes or cancer. Basically, if you are in good health, don't use tobacco products or engage in hazardous activity, you'll be charged less than someone who does.
If you spend your time mountain climbing, parasailing or hang gliding, or as a weekend pilot, Sherman says you'll pay a larger premium. Likewise, if your daily work puts you at risk, insurance companies will consider you a greater liability.
Although gender doesn't affect your classification, it does affect premiums because women tend to have a longer life expectancy so they pay less for the same coverage than a male of the same age and classification, says McCloskey.
For example, a 40-year-old man with coverage at $500,000 and a term of 20 years will have the following annual term life premiums for these classifications: preferred plus, $375; preferred, $475; standard plus, $625; and standard, $760, says Byron Udell, founder of AccuQuote, a term life insurance brokerage in Wheeling, Ill. For a woman of the same age with the same coverage, she'd pay: preferred plus, $311; preferred, $407; standard plus, $533; and standard, $638.
"The very best health rate you could get in 1994 was $995, so the cost for term life insurance has gone down considerably," says Udell.
The good news is once your classification is set, you can never be put in a higher risk category even if you start smoking, develop cancer and gain 50 pounds, says Udell. On the other hand, if your health improves, you lose weight, your cancer goes into remission or you get a less risky job, you can reapply and potentially qualify for a lower rate class that will save you money on your insurance, Udell says.
"Revisit your policy every two years to see if you can be upgraded and if the term of your policy is in line with your current needs," says Sherman.
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