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What Is Preferred Rating Class in Life Insurance?
<lingo>Life insurance companies set premium costs based on risk. The higher the risk an individual poses to the company, the more expensive the life insurance policy will be. To define this, they create rating classes. Each insurance provider sets their own terms for what factors define where a person falls in these rating classes. A preferred rating class is generally one of the top tiers, meaning these individuals are least likely to die during the first years of the policy, and therefore are likely to qualify for the lowest cost life insurance available.</lingo>
Preferred Rating Class Clearly and Briefly Explained
When a person applies for a life insurance policy, the company must determine risk. To do this, they factor in a variety of elements including the applicant’s age, health, and lifestyle. Those who live a safe life, have no diagnosed health conditions, and who are younger pay the least amount for life insurance. This may fall in the preferred rating class.
Many factors can impact these ratings. For example, a smoker may be placed lower on the rating class than a person who is a nonsmoker. If a person smokes but is very healthy, that person is placed higher as well. In every situation, a person’s lifestyle choices diagnosed health conditions, and his or her age play the largest role. Being diagnosed with a condition like high blood pressure, heart disease, cancer, or diabetes can increase risk.
<twitter>A preferred rating class is generally one of the top tiers, meaning these individuals are least likely to die during the first years of the policy, and therefore are likely to qualify for the lowest cost life insurance available.</twitter>
Over time, that rating class changes, especially as a person gets older. Most of the time, insurance companies use medical tests taken at the start of each policy term to determine the level of health of the applicant to assess these risks. If a person has a history of illness, some insurers may rank that person’s risk much higher, dropping their rating class. This can make it hard to obtain insurance, or, if available, it may be expensive.
Preferred rating class is one term. Every company sets its own specific terms to describe their rating class. It is important to clarify from the insurer what rating class you fall in and why.
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