What is your Life Insurance Risk Category?

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Marie Ellis died in December 2004 at the age of 105. What makes her story notable is that she smoked 15 cigarettes a day. If you're a smoker, however, don't expect life insurance companies to cut you a break because of Ms. Ellis' longevity. The life insurance industry assigns its customers into different risk categories, and the higher their risk in insuring you, the more they charge. Despite the occasional story of long-lived smokers, smoking is one of the health choices that will affect your premium the most.

The U.S. government tracks the life expectancy of people, from all walks of life, all income levels and all nationalities, and their hobbies and illnesses, and the insurance companies use this information (and proprietary databases of their own) to set their premiums. As an individual, if you are overweight and smoke, for example, you are taking a risk with your own health, and life insurance companies are taking a risk insuring you. So they charge higher premiums, or in some cases, won't insure you at all.

While practices vary somewhat between companies, most insurance companies assign risk in the following way: First they divide everyone into two groups: "smokers" and "non-smokers". Within each group, people are divided into one of the following three categories: "Standard", "Preferred" and "Preferred Plus". (Note, while the categories are fairly standard, different insurance carriers call them by different names.) Many factors affect which category you're placed in, including your height / weight, history of major health conditions, cholesterol level, and history of substance or alchohol abuse.

However, customers within the same risk category will have widely varying premiums. That's because insurance companies look at a wide variety of other issues, including: your credit score (will you continue to pay your insurance premiums?), hobbies and travel (skydiving in the Former Soviet Republics -- perhaps they'll pass), mental health history, and even your driving record!

If you apply for insurance, and are turned down, or get a higher rate than you expected, don't give up. Try to get as much information as possible about the insurance company's reasons. It's possible, for example, that there was an administrative or medical testing mistake made. If you can help them correct that mistake, they'll be happy to reassess their rates. (Remember -- the insurance company would love your business -- they just need to know that you will be a profitable customer!)

Most importantly, don't lie during the application process. If, for example, you failed to tell the insurance company that you are a scuba diver at the time you applied for your policy, and you later die in a scuba diving accident, the insurance company would have a legitimate reason to deny your family's claim.