How Do Health Ratings Affect Whole Life Insurance If I’m Interested in Cash Value?

How can poor health affect my whole life insurance policy? This is a question we get from time to time. So depending on how you approach a whole life insurance policy, you're going to view it differently most likely. If you are just price quoting a policy, and you look at a standard rating versus an ultra preferred rating, you will see a different premium, a different dollar amount you'll need to pay to get the same amount of coverage. But if you are approaching a policy from a cash accumulation perspective, regardless if you have a standard rating or an ultra preferred rating, you can still say, here's how much money I want to pay to the policy to maximize my cash value. Having a standard rating instead of an ultra preferred rating though, will have a slight drag on the actual cash value growth. And I'll go over the actual returns so you can see what it looks like. To start, let's go through the three most common health ratings. So we've got standard, preferred, and ultra preferred. There are others depending on the insurance company you're working with, but those are the three most common. And when I say standard, I'm referring to standard non-smoker. If you're a smoker, you will have a higher cost of insurance. So why one might get a standard rating is typically because they have a few health issues. Maybe they had a major health issue in the past, like cancer or something like that, but it was 10, 20, 30 years ago. But once you had something major, it can be difficult to get an ultra preferred rating, but they're healthy. So with a standard rating, typically we might see someone have a few minor health issues. They could be a little overweight when we look at the BMI chart. But what could also trigger a standard rating is if someone had a major health issue in the past, but they've resolved it and a long period of time has passed. For example, we have worked with many people who were diagnosed with cancer, but it was 10, 20, or 30 years ago. They've been cancer free and it's no longer a concern. Even if they might normally get an ultra preferred rating though, they end up getting a standard rating because of the cancer history. That's not always the case. Cancer is very, very specific based on the type, but you will see things like that occur as well as to why someone might get a standard rating instead of a preferred rating. Now the next class, preferred, which I'll call regular preferred, means someone is healthy and maybe they've got one to two minor issues. They're a little up there on the BMI, meaning they're not lean and mean. They're a little overweight. Maybe they've got high blood pressure, but it's been controlled for a while. Overall, they're in good health. They've got a few minor issues that are not a major concern, but also the underwriter is not saying, hey, we're going to give them ultra preferred. That's not the case. And then you've got ultra preferred, which means they've got no issues and their family health history is also very good, meaning they don't have a lot of cancer or heart disease in their family health history. So two approaches here. Price quote, which means the lower the rating is, the higher the premium will be for the same amount of coverage and then cash value. Let's look at the price quote first. So with price quoting life insurance policies, here we go. Here is a 40-year-old male getting a whole life insurance policy and his health rating is standard non-smoker. The premium is $20,410 per year. This is absolute junk if you're interested in a policy for cash value, by the way. I would never set it up this way. But we see what the premium is for $1 million of coverage. If you look at a preferred rating for the same $1 million of coverage, there's your preferred NT, stands for non-tobacco. It's almost $1,000 less, $19,550. Take note of the cash value at year 20. You're at $511,000. And why I pointed that out is because when you look at the next class up, Ultra Preferred, which this company calls Preferred Plus, the premium stays the same at $19,550. But the internal costs are a little bit less, which is why that cash value is closer to $515,000 instead of $511,000 at year 20. So you see a slight improvement on the overall performance as a result of having the better health rate. Now, the cash value. This is what everyone we speak with is interested in. Typically, it's about 0.1 to 0.15% in an actual difference of the yearly performance, meaning the annual yield or annual rate of return. I'm gonna pull that up. Over time, though, that can make a difference. Some people have noticed. So just to give you a simple example, with a standard rating, I might see 4.75% with Preferred. I see 4.9%. And Ultra Preferred, it might be five. So I'm going to use the most conservative, one of the most conservative products in terms of the long-term growth rate. This will be the lowest. But everything is apple to apple in terms of the design here. So we've got 100K per year going in for five years. What we've got here is a standard non-smoker rating. There's your 500K total going in. First year hit, 11.84%. The annual yield peaks at 4.67%. Okay, now let's compare that. Do a Preferred rating. There we go. Death benefit, the same. Base premium and PUA breakdown, the same. Everything is identical here. But you'll notice the first year hit is a little bit less. And the annual yield peaks at 4.77%. So you're about 10 basis points stronger. Not all that much, in my opinion. And then you've got Ultra Preferred on the far right. So looking at Ultra Preferred, the annual yield peaks with this product at about 4.82%. About five basis points stronger than Preferred. Not all that much. Over time though, you will see a difference. Here's usually what people look at. 30 years down the road, you're seeing a noticeable difference. From standard to Ultra Preferred, it's close to 100 grand. When we look at the net number. But that is typically how we like to compare the different health ratings. I will add this too. If somebody gets a standard rating and it's something that they can improve upon with their health, you can upgrade your health rating later. We had a young guy many years ago who started a whole life insurance policy. He got a standard non-smoker rating. Any reason why? Because he was overweight. Years later, he got into running, lost that weight, said, hey, I'm healthy now. We applied to upgrade the health rating on his existing policy and he got an Ultra Preferred rating. What happened is his premium went down and he saw a nice jump in the cash value because it was rated back to his original start date. So the Ultra Preferred rating was assessed to his age when he first started the policy. So we saw a nice little boost in the cash value for all those years he had a standard rating, which was pretty nice. So I always like to add that that is a possibility as well. Anyway, I hope you enjoyed this video. Let us know your thoughts in the comments. And as always, I hope this helps.