Actuarial Computations

• Life insurance premiums are calculated by actuaries, whose function is to analyze mortality statistics of people with various physical traits and social characteristics. If your health conditions have been statistically demonstrated to result in a shorter life span, the price for your policy will be higher to offset the additional monetary risk to the carrier.
  
  

Paramedical Exam

• Most carriers require you to take a paramedical exam, which is simply a physical check-up. A nurse will ask questions about your medical history, take physical measurements, record blood pressure and obtain blood and urine samples. Sometimes, paramedical exams include an EKG, but this is usually only for much older applicants or coverage over $1 million. The exam validates information you entered on the application and provides additional medical data. The subsequent laboratory tests give the carrier information about your current health, which underwriters use to categorize you. Small differences in blood pressure, cholesterol, protein levels and other functions can mean the difference between a "Standard" and "Preferred" classification, but these issues are not a major concern unless they are severely outside normal parameters. Underwriters are most worried about heart disease, strokes, hypertension, diabetes, cancer, HIV/AIDS and other conditions that have a high likelihood of early death.
  
  

Attending Physician Statement

• If your life insurance application or paramedical exam reveals problematic health conditions, the carrier will typically request an Attending Physician Statement, which is a report prepared by your physician that provides the company with details of your treatment history and medical conditions.
  
  

Table Ratings

• Most applicants end up in one of three underwriting categories: "Standard," "Preferred" or "Preferred Plus." Standard classification indicates you are an average, acceptably healthy person; Preferred classification indicates you are healthier than your average peers; and Preferred Plus classification indicates you are significantly healthier than your average peers. However, if your medical conditions make you less healthy, and riskier to insure, than Standard applicants, the company may classify you with a permanent sub-standard "table rating." Table ratings range from one to eight, or "A" to "H," with higher numbers or letters indicating more risk, and also higher premium.
  
  

Flat Extra

• To address the liability of insuring someone with problematic health conditions, insurers add a "flat extra" cost to the policy. A specific dollar amount, usually between $1 and $5, is added to the premium for every $1,000 of coverage. For example, if $100,000 of life insurance was given a $2 flat extra increase, you would pay an additional $200 annually ($100,000 ÷ 1,000 = 100 x $2 = $200). Unlike table ratings, flat extra costs are not permanent and are used to address a liability that may eventually disappear. Flat extra premiums typically last for 1 to 5 years before they are removed.
  
  

Declination

• Sometimes, health conditions may make you ineligible for ordinary life insurance. If paramedical exam results, or your physician's statement, reveal history that suggests your life expectancy is too short, you will be labeled uninsurable and your application declined. Only severe health conditions, such as recent heart attacks, strokes, cancer, or HIV/AIDS, result in declination. Some carriers will allow you to reapply after a period of time, but others refuse to reconsider a declined applicant.
  
  

Guaranteed Issue Policies

• If health conditions made you ineligible for ordinary life insurance, you can buy a Guaranteed Issue (GI) policy. These are designed specifically for people who cannot otherwise obtain life insurance, and companies providing GI products expect applicants to be extremely ill. GI policies are more expensive than ordinary life insurance. However, they do not require medical exams, so poor health will not impact your ability to get coverage. Unfortunately, death benefits are limited or graded to protect the carrier's stability. If you die within a year after purchasing a policy, your heirs only receive a portion of the death benefit; if you die after the second full year, your heirs receive the entire face amount.