What is a Flat Extra Premium?
A flat extra premium, also called a flat extra charge, is a set amount of money added to a life insurance policy’s premiums to mitigate risk for insureds to whom the life insurance company has assigned a substandard rating. Basically, if you’re high-risk, you might need to pay this additional cost.
Life insurance ratings and their associated costs
When you apply for life insurance on yourself, the insurance company kicks off an underwriting process. They use a variety of tools, from medical exams to mortality tables, to determine their risk level should they decide to insure you. Based on what they find, they assign a rating to you.
If you’re healthy and you don’t have a risky job or hobbies, you’ll be assigned a better rating, like preferred plus or preferred. Most people get a standard rating, which means they’re in line with the average as far as risk level and life expectancy.
If you fall below standard, the insurer has to make a choice. They can either deny you coverage or decide to issue you what’s called a rated policy. If they choose the latter, the policy they offer you will be more expensive than the average policy because of the higher risk you present.
If you’re particularly risky in the eyes of the insurer, they may also add a flat extra premium to your policy’s cost.
How flat extra premiums work
Generally speaking, life insurance companies have a set premium that they assign to rated policies based on specific factors like the insured’s age and gender. But if they deem you higher-risk than other substandard-rated individuals, they may need more money from you to mitigate that risk.
In that case, they add a flat extra charge to your premium. This is usually expressed as a dollar amount (e.g., $5) per amount of coverage (e.g., $1,000). So if you have a flat extra premium of $5 per $1,000 of coverage and you’re buying a $500,000 policy, you’d pay an extra $2,500 annually to cover the flat extra charge.
Some flat extra premiums are short-term, meaning they’ll last one to five years. Others are applied for the entire life of the policy.