Because people with various health issues can present added risk to a high risk life insurance company, the insurer has to “make up” for this risk somehow. Oftentimes it is through a higher premium payment.
One of these methods for determining the life insurance premiums is to charge a flat extra. This refers to increasing the cost per thousand dollars of coverage for a certain period of time. With that in mind, the added flat extra amount is multiplied by the number of thousands (i.e., 100 thousands for a life insurnace policy with a $100,000 death benefit) you are insuring.
So, if the base life insurance premium for a $100,000 policy is $1,000 per year, and the flat extra cost is $1 per thousand, then the total yearly premium would be $1,100 ($1,000 base premium + [$1 x 100] = $1,100).
Note that after a certain amount of time has passed, the flat extra charge may disappear.
Alternatively, if a table rating is used, there are different rating levels by which the amount of premium will go up. As an example, based on the severity of an applicant’s health condition, a rating of 1 could signify a premium increase of 25%. Likewise, a rating of 2 could signify a 50% premium increase, and so on.
Therefore, if an applicant is rated as a 2, then the cost of the policy would be the base premium rate, plus an additional 50% of that amount.
In some cases, both a flat extra and a table rating may apply. Because any of these ratings or extra charges could increase the policy’s premium significantly, it is essential to have an agent who can go out into the market place and find the best alternative for you. Not only can this save you a great deal of time, but it could also end up saving you hundreds – or even thousands – of dollars per year on your premium.