The Ultimate Guide to Classes of Life Insurance Underwriting

Are you looking for life insurance in Ontario? It can be an intimidating task, especially since there are so many variables that factor into the rates and types of insurance you can get. Don’t let yourself feel too overwhelmed, though. Take a look at our breakdown of life insurance underwriting so you can get a better handle on the life insurance process.

What Is Insurance Underwriting?

Insurance underwriting is the process by which your life insurance company in Ontario decides whether or not you can be insured, how much coverage you should receive, and how much your premiums for that coverage will be. These factors won’t be the same for everyone who applies. Your insurance underwriter will base their evaluation on the level of risk you present to the insurance company. For instance, if you are a 35-year-old smoker with a dangerous job and hobbies that include sky diving, then you pose a greater risk of early death (and the subsequent early payout) than a 35-year-old non-smoker who works a desk job and reads for a hobby. Your level of risk affects your insurability, your level of coverage, and your premium; insurance underwriting assesses all of those variable risk factors and defines your policy around them.

What Are the Different Underwriting Classes?

Because there are so many variable risks involved, there also needs to be a variety of levels at which insurance companies in Ontario can insure people. These different levels are called underwriting classes, and each class influences the premium you are eligible for and the amount of coverage you can receive. Here is a quick breakdown of the different classes and how they are identified:

• Class 1: Non-smoker (for at least two years) with very good health and a healthy, low-risk lifestyle.
• Class 2: Non-smoker for one year with good health and a healthy, low-risk lifestyle.
• Class 3: Non-smoker for one year with fair health and a fairly healthy, low-risk lifestyle.
• Class 4: Cigar smoker (not always distinguished from cigarette smoking, depending on the insurer) with otherwise good health and an otherwise healthy, low-risk lifestyle.
• Class 5: Smoker with otherwise good health and an otherwise low-risk lifestyle.
• Class 6: Smoker with fair health and lifestyle.

As mentioned above, the underwriting class you fall into is influenced by the level of risk you pose to your life insurance company in Ontario, and your level of risk is assessed based on a set of determining factors. While these seem to primarily include tobacco use (in some cases, cigarette smoking is classed differently than cigar smoking, vaping, or smoking pot, but often these are all encompassed under the same “smoker” classification), also important to the assessment are your health status (most often involves a medical and blood testing), medical history, family medical history, physical build (fit, overweight, obese, etc.), and lifestyle (which includes factors like how dangerous your job is or if you participate in dangerous hobbies).

How Significantly Does Your Underwriting Class Impact Your Premium?

The underwriting class you fall into influences which premium rate your life insurance company in Ontario will qualify you for. These premium rates typically fall into four categories:

• Preferred: Some life insurance companies in Ontario will offer a discount on premiums to individuals who live healthier and less risky lives (assessed based on factors like fitness, smoking status, weight control, etc.). These premiums are called preferred rates (also sometimes broken down further into elite or preferred plus), they can be discounted up to 30 per cent, and you may have the option to either take the new discounted premium or to keep your standard premium but increase your amount of coverage.
• Standard: Standard rates describe insurance premiums that have neither an added discount for healthy lifestyle nor an increased rate to accommodate a higher risk factor or less healthy lifestyle.
• Substandard: If you are approved for substandard rates, it means your health is less than ideal, or you lead a riskier lifestyle. Based on the severity of risk identified in your assessment, your rates will fall between 125% and 500% of the standard rate. There is an alternative to the substandard policy, though. You may instead be approved for a standard rate with an exclusion for a hazardous avocation. This precludes the insurance company from having to pay a claim should you die performing the hazardous activity or from a certain precondition, which thereby alleviates the increase of risk.
• Declined: It is relatively rare that you would be declined for life insurance coverage in Ontario. You are more likely to be approved with exclusions or higher rates. Only around 4% of people are actually denied insurance, and a declined policy can be appealed.

It is also important to note that you are never trapped in your rate category. While the life insurance company has no recourse to downgrade your premium once you’ve been approved for a guaranteed rate (i.e.: if you were approved at a standard rate, the insurer can’t re-evaluate you at a substandard rate, unless you let your policy lapse or have to re-apply at the end of your term), it’s also important to note that, should your health or lifestyle improve (i.e.: you quit smoking or lose weight), you can still be reassessed at a better rate after you purchased your policy at a different rate.

How do You Qualify for Each Class of Life Insurance?

As mentioned above, your eligibility for each class of life insurance in Ontario (and the subsequent premium it qualifies you for) is based on an assessment of your health and lifestyle. These factors are determined via a questionnaire and a medical exam (although there are specific policy types called no-medical insurance that offer higher rates without a medical, and in some cases without a questionnaire). Here are a couple of the questions you might be asked:

• When did you last use tobacco or nicotine products?
• What is your height and weight?
• Are you generally in good health? (may ask about your blood pressure, cholesterol, etc.)
• Do you play hazardous sports?
• Do you ever travel to countries that are on government watch lists?
• How many moving violations have you had in the past three years?
• Have you had a DUI in the past 5 years?

Your answers to these and other questions will each be attributed a class, and at the end, your overall insurance class will be averaged, marking you as eligible for substandard, standard, or preferred rates.

Conclusion: Where Should You Go to Get Insurance?

Ready to start looking into life insurance in Ontario? InsurEye is an info hub that can provide you with more information on life insurance and life insurance products, including helpful consumer reviews. You’ll also be able to receive quotes and connect with professional consultants who will be happy to help you to better understand the underwriting process so you know exactly how to get the best premium possible.