Rated Premium

In the context of Life Insurance and/or Living Benefits in Canada, a "Rated Premium" refers to a higher premium rate charged to an insurance policyholder due to an increased risk associated with insuring the individual. This adjustment in the premium rate is typically the result of the underwriting process, where the insurer evaluates the applicant's health, lifestyle, occupation, and other risk factors. If the insurer determines that the applicant poses a higher risk of claiming the insurance benefit due to these factors, the premium is "rated" or increased to reflect this higher risk.

Key aspects of Rated Premiums include:

  1. Risk Assessment: The determination of a rated premium is based on a thorough assessment of the applicant's risk factors. This can include medical conditions, family medical history, dangerous hobbies or occupations, and lifestyle choices such as smoking.
  2. Higher Premiums: Individuals with rated premiums will pay more for their insurance coverage than those who are considered standard risk. The extent of the increase depends on the insurer's assessment of how much higher the risk is compared to the average policyholder.
  3. Permanent or Temporary: Depending on the reason for the rating, the increased premium may be permanent for the life of the policy or temporary. For example, a smoker might be able to reduce their premium rate to a standard rate if they quit smoking and meet the insurer's criteria for being tobacco-free for a certain period.]
  4. Policy Acceptance: Accepting a rated premium allows individuals who might otherwise be uninsurable to obtain life insurance or living benefits coverage, albeit at a higher cost.
  5. Transparency: Insurers are required to explain the reasons for imposing a rated premium, giving applicants the opportunity to understand the specific risk factors that influenced their premium rate.
  6. Review and Adjustment: In some cases, policyholders with rated premiums may have the opportunity to have their premiums reviewed and potentially adjusted if there has been a significant change in their health or lifestyle that lowers their risk profile.

Rated premiums are a mechanism for insurance companies to manage the financial risk associated with providing coverage to individuals who are at a higher risk of making a claim. For policyholders, understanding the factors that can lead to a rated premium is important for managing insurance costs and considering ways to improve their risk profile where possible.

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