Understanding Flat Extra Premiums in Life Insurance: A Comprehensive Guide
When it comes to protecting your family’s financial future, life insurance stands as a shield. But what if you find yourself in a situation where life insurance companies aren’t offering a straightforward “yes” or “no” answer? Perhaps you’re dealing with a serious illness or you engage in dangerous activities like skydiving, scuba diving or even racing.
If you have applied for life insurance and received a flat extra rating, don’t give up yet. Not all life insurance companies play by the same rules. In fact, companies will say, “Tell me more.” A flat extra premium is not the end of the world and could just be a temporary rate up. We work with over 60 life insurance companies and more than likely can get you a better rate.
What Is a Flat Extra Premium?
A flat extra premium is an extra premium that is charged on top of the normal premium. This premium is charged per $1,000 of coverage. So lets assume your flat extra premium is $2.50 per thousand. If you are buying a $100,000 policy, your additional cost would be $250 per year.
This cost could be added to your policy for the entire duration or for a shorter period like 3 years or 5 years. The shorter period of time would be a temporary flat extra.
What is the reason for this extra? When insurance companies identify an elevated risk, they will add this flat extra premiums to offset potential future financial losses.
To illustrate this, consider a scenario: The annual premium quoted for your $100,000 policy is $500. You are rated up a flat extra of $2.50 per $1000 which adds $250 per year to your premium. Now your premium for that same $100,000 is $750 per year.
This increase in premium is to offset the potential of you dying while the company is insuring you. The company is accepting additional risk so therefore charging you more for the policy.
Understanding Risk Classes:
Life insurance companies assess risk, and they categorize applicants into different risk classes based on their health and lifestyles. Let’s break down these risk classes:
- Preferred best: If you’re in peak health, have no family history of health issues or dying early, excellent driving record and financial credit history, you might qualify for this best rating and your premiums will be less.
- Preferred: A great rating but maybe you don’t fall in the perfect height and weight chart or maybe you have had some moving violations
- Standard: The most common rating, typically awarded to individuals with average health.
- Preferred Smoker/Smoker: Since you use nicotine, your rates will be higher.
When You Don’t Fit into a Box: Ratings and Flat Extras:
Life insurance underwriting is pretty straightforward. Underwriters have a lot of historical data that allows them to determine your rate class. Sometimes health conditions or lifestyle choices don’t align with cookie cutter risk classes. This is where flat extra ratings come into play.
Medical Conditions can cause flat extra premiums:
Certain medical conditions often lead to rated up premiums. Examples include cancer that has gone into remission, heart problems, kidney issues, and other chronic health concerns. It’s worth noting that common health issues like high blood pressure or high cholesterol usually don’t result in ratings. This is because prescribed medication can treat these issues and bring them down to normal levels.
Dangerous Activities can cause flat extra premiums:
What if you have riskier hobbies than your average Joe? Engaging in high-risk activities such as race car driving or skydiving can have implications for your life insurance. Even professions such as being a pilot, with the exception of commercial airline pilots, might cause additional considerations. In such cases, insurance companies might require you to pay a flat extra premium to account for the heightened risk associated with these activities.
How to Approach Flat Extra Premiums:
When you are in a situation that doesn’t fit neatly into the standard risk class box, you want to make sure that you have the right insurance company for the job. By sharing as much detail with us about your health condition or dangerous activities, we can shorten the application process. The more we know the better the underwriters can access your rating. The goal is to find you the best possible rating and to minimize the flat extra premium needed by the insurance company.
We have questionnaires for all types of health issues and risky activities. These will help in the underwriting process.
Reducing premiums when you have a flat extra rating
The most popular term policy is a 20 year term. By choosing a lesser term period like 15 or 10 years, you can reduce your base premium. The additional flat extra premium is still there but your overall rate could be less. Once you ride out the flat extra, say 5 years, you can apply for a new term policy or even convert your current term policy to a permanent policy without the additional rating.
This may not work every time but we can help guide you to the right choice.
Start the process by using the quoter on this page to get your initial rate.
Call us at 800-712-8519 to discuss your specific situation, or fill out our form on this page and we can get you a custom quote for life insurance based on your specific needs.
