Should You Take Offense To A Standard Rate Offer For Life Insurance?

A lot of people understand why and know that a standard rate approval is coming on life insurance and are happy to get it. On the other side of the coin are those that receive a standard rate approval and are taken aback by it, taking offense to not receiving a better offer.

Let’s see if we can put that standard rate in context. In a recent post on how policies are rated I reviewed the four primary categories that most companies use as their top four rate classes, preferred plus, preferred, standard plus and standard.

We would all like to be preferred plus and get those low rates you see advertised all over everything. I was approved preferred plus once about 11 years ago, in my mid 40’s. It felt good and that policy is still in force today because the combination of my tender young age and good health resulted in a very cost effective $500,000 policy. Since then my health has hit a few bumps, underwriting has become a little tougher and now, I am more of a standard plus risk. One step away from standard.

Keep in mind though that while standard may be at the bottom of the base policy rate classes, it is a long way from the highest rates that are being paid for life insurance. The standard rate class is really priced and intended to reflect an appropriate rate for the average person. While that means that there are a lot of people who don’t have health or family history issues that underwriters feel affect their mortality risk to some degree, there are plenty who don’t qualify for standard and could be paying table rated prices that are anywhere from 50% to 300% higher than standard. And of course there are those who are declined for coverage which can make a standard rate seem like a sweet deal in a hurry.

Standard rates can come from any number of issues or combination of issues. Obesity is a common cause for standard rates. For instance at my 5’10” and 175#, if weight was the only factor I would be preferred plus. If I were up in the 220-230# range I would be a standard rate. If my cholesterol was high, say 280, and my ratio was also high meaning I didn’t have enough HDL or good cholesterol, that could lead to a standard rate. If I had 3 or more motor vehicle moving violations in the past 3 years I would be a standard rate risk with most companies.

So, is there shame in a standard rate approval? Should you reject the approval just on the merits of being only average? My personal and professional advice is that you should put the policy in force. If you feel you have been genuinely wronged by the underwriting, seek another company with a different opinion, but do it knowing that you have life insurance in force. You can always pay for it monthly until you find that better deal and then drop it. There is nothing wrong with replacing a life insurance policy just a few months into it when you are approved for a better deal. This comes with a word of caution. Don’t dump the first policy if you find a better quote. Only lapse it when you have a new approved policy in force.

Bottom line. I know most of us would like to believe we are well above average and we may well be in a lot of ways. Keep in mind though that life insurance underwriters scope a broad spectrum of mortality risk issues in making their decisions. I know it’s not a perfect system, but overall it is grounded in sound data.