If there is a common thread through the whole life insurance application/underwriting experience, it’s that those applying tend to underplay their mortality while feeling like underwriters really overplay the whole mortality thing.

Life insurance pricing and mortality risk evaluation is far from a perfect science. If it was “perfect” and absolutely fair to everyone, there would be more than four basic rate classes and eight subclasses (table rating). There would be maybe 100 rate classes and every conceivable health issue would be graded on a point system and your overall evaluation would lead to a specific rate that was custom just to you.

In this fantasy underwriting idea everyone would start at the worst rate class and deductions would be awarded for all of the underwriting categories that currently exist, height and weight, smoker or non smoker, cholesterol levels, blood pressure averages, liver functions, family history and so on. If a person was a perfect specimen and got a deduction for everything they would pay the equivalent of the best rate class now, preferred plus or preferred best.

But here’s where the difference would kick in. If a person only had one deduction out of all the categories, instead of the current system that would bump them one full rate class, they would only be bumped the appropriate mortality experience percentage relating to that one issue. For example, if I were in perfect health and wanted $250,000 of 20 year term I could get that for $955 a year. For the sake of my experiment here let’s say that the total cholesterol level for the best rate class had to be 220 or less and mine was 227. In today’s underwriting reality that would bump me to a preferred rate at $1104 a year, a 14% increase.

But what if, scientifically speaking, there was really only a 2% increase in mortality risk due to that elevated cholesterol? With my system I should then pay 2% above the best rate class, $974.10. I like it!

Bottom line. There is a mortality reality that we, as customers, don’t really want to admit to and there is an inherent unfairness in generalized underwriting rate classes that insurance companies don’t want to talk about, admit to or deal with. But, it is what it is for now and as long as life insurance companies keep rates as low as they are, even when we don’t get the best rate, we still get good rates and probably ought to cease whining.

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