Our attorneys use their knowledge of the insurance industry to fight for you


What Is Substandard Insurance?

Insurance is an important investment that can provide peace of mind for an individual and his or her family. Although most people are eligible for different types of insurance, not everyone is a prime candidate. With life insurance, for example, some applicants may have health issues or histories that result in higher insurance premiums or more restrictive policies. If you do not qualify for a standard insurance policy, the carrier may offer substandard insurance based on your higher risk as a client. Substandard insurance, also called classified insurance, is most common in life insurance policies.

How Life Insurance Premiums Work

The goal of any life insurance company is to save money and profit its investors. One of the ways an insurance company saves money is by mitigating the risks it takes with its clients. A life insurance company may calculate a higher financial risk in covering someone with poor health, for example, since the insurer will likely have to pay out a claim sooner rather than later. To mitigate these risks, the insurance company will charge a client more or less in premiums based on the client’s health.

What Are the Life Insurance Classifications?

The amount you will pay for your life insurance plan depends on your classification as a policyholder. Before accepting a new client, a life insurance carrier will survey the client to place him or her in a classification. Factors the provider will analyze include family history, current health and hobbies. The provider will then use its classification system to determine monthly premiums and other life insurance considerations based on the person’s eligibility for coverage:

  • Someone with a long history of family health problems, bad habits or recent health issues may fall into the substandard client classification.
  • A standard client may not be an ideal client based on his or her family history or a below-average weight/height ratio.
  • Standard Plus. These clients are in good health, but they may have more issues than a preferred client, such as being outside the ideal weight/height ratio.
  • Preferred clients are in very good health but may have minor health conditions, such as high blood pressure.
  • Preferred Plus. These clients have ideal weight/height ratios, no health problems and are in excellent health.

These are the most widely used life insurance classifications, although some companies may use a slightly different system. A client’s classification is important, as it can determine things such as the price of the insurance policy, claim limits, coverage restrictions and more. A substandard classification could drastically increase the costs of insurance compared to a preferred or preferred plus classification. You may have to pay twice the price, for example, for the same life insurance coverage as someone in the preferred class.

Who Gets Substandard Insurance?

Health problems, both current and in the past, could place a client in the substandard classification for life insurance eligibility. Factors that could be marks against the client include existing conditions like diabetes or heart disease, alcohol abuse, cigarette or tobacco use, a dangerous job, hazardous hobbies, a bad driving record, and other red flags. Clients in the substandard class will receive a rating by letter and number, typically from A to J, which will decide how much the client must pay extra for coverage.

Affordable Care Act Considerations

Now that the Trump Administration has rolled back the requirements of the Affordable Care Act (ACA), cheaper types of life insurance may be available. Clients will no longer face penalties for purchasing life insurance policies that do not meet the ACA’s minimum requirements. While cheaper premiums may be enticing, these policies can be risky. Life insurance companies that offer lower premiums for substandard insurance may be engaging in questionable business practices, such as pushing clients to purchase insurance they do not need. Purchase your plan with help from a professional advocate to make sure you do not buy into a scam.