The mortality rate, often expressed as a percentage or a number per a specific population, is a measure that indicates the frequency of deaths within a particular group or population over a defined period. This statistic is used in various fields, including public health, demography, actuarial science, and epidemiology, and serves as a key indicator of the health and well-being of populations. But what does the mortality rate have to do with life insurance?
Life insurance carriers use the mortality rate when determining individuals’ risk levels during the underwriting process, so it has a direct impact on premiums. In this article, we’ll explain how the mortality rate is determined and how it affects life insurance risk classifications.
How is the mortality rate determined?
The mortality rate is calculated by dividing the number of deaths within a specific population by the total population and then multiplying by a constant, such as 1,000 or 100,000, to express the rate per a standard unit of population. The time frame for which the mortality rate is calculated is typically a year, but it can be adjusted based on the specific needs of the analysis. Mortality rates are analyzed over time to identify trends, patterns, and changes in mortality within specific populations or across different demographic groups. For example, the Centers for Disease Control and Prevention (CDC) listed the 12-month mortality rate in the U.S. in 2023 as 944.1 deaths per 100,000 people.
How does the mortality rate affect your premiums?
The mortality rate directly influences life insurance premiums, as it’s a key factor in assessing the risk associated with insuring an individual. Insurance companies use mortality rates to calculate premiums, reflecting the likelihood of a policyholder's death and the resulting financial risk to the insurer. People are often assigned to risk categories based on many factors, including their mortality risk, with lower-risk individuals paying lower premiums and higher-risk individuals paying higher premiums. The life insurance risk categories are:
Preferred Plus: Also known as Super Preferred or Preferred Best, this category is most often assigned to people in excellent health with no family history of medical conditions like heart disease or cancer.
Preferred: People who qualify for the Preferred class are usually in generally good health with the exception of common, manageable health issues like high blood pressure.
Standard Plus: Also called Regular Plus, this category is typically assigned to people in overall good health but who have several minor health concerns, like high cholesterol, high blood pressure, or being overweight.
Standard: The Standard classification is also known as Regular or Standard Non-Smoker. People in this category usually have average health and a normal life expectancy, but also a family history of heart disease, cancer, or other serious health conditions.
Preferred Smoker: Preferred Smoker is a subcategory of the Preferred class and is designated to people who would otherwise fall into the Preferred class if they did not smoke.
Standard Smoker: Similar to Preferred Smokers, this subcategory is for people who would fall into the Standard classification if they did not smoke.
Substandard: The Substandard category is typically used for people with a complicated medical history or with recent health issues, like a heart attack. This category uses a table rating system that’s graded by either letters or numbers (A-J or 1-10), depending on the carrier. On average, your premium will be the Standard price plus 25% for every level down in the ratings. Using the letter grades as an example, this would look like:
A = Standard + 25%
B = Standard + 50%
C = Standard + 75%
D = Standard + 100%
E = Standard + 125%
F = Standard + 150%
G = Standard + 175%
H = Standard + 200%
I = Standard + 225%
J = Standard + 250%
SelectQuote Can Help You Understand Factors that Impact Life Insurance Premiums
Navigating the ins and outs of life insurance can be overwhelming, but we’re here to help. SelectQuote’s licensed insurance agents have the knowledge and experience to answer your questions about the factors that impact your life insurance premiums, including the mortality rate. We’ll work closely with you to learn about your needs and priorities, then search trusted carriers on your behalf to find a plan that fits your needs and budget.
