Through their underwriting process, insurance companies classify or rate insureds by their risk characteristics. Health, occupation, avocations, gender, and habits (e.g., whether or not the insured smokes or drinks) are the types of factors considered when rating insureds. Depending on the rating, premiums may be based on “standard” or “preferred” mortality charges or multiples of up to five or even more times the standard mortality charges. Many insurers specialize in substandard risks. They will ensure people with certain high-risk health characteristics, such as heart conditions, diabetes, or other diseases or debilitating conditions, or who have been employed in high-risk occupations or practice high-risk avocations. Except for people in extremely poor health, almost anyone can acquire insurance, but perhaps only at very high rates. Insurers guarantee that mortality charges will not exceed certain maximums. But similar to interest rates, mortality rates insurers may use when computing required premiums and reserves must exceed certain statutory minimums by age and classification of insured.
Reproduced with permission. Copyright The National Underwriter Co. Division of ALM