Classification of applicants
MR. WATSON: Classification of applicants. You will either be
- preferred,
- standard,
- substandard, or
- uninsurable.
If you're standard, what will you get? Standard. If you are preferred, better rates. What if you are substandard?
ALL: Higher rates.
MR. WATSON: What if you are uninsurable, what will you get?
ALL: Nothing.
MR. WATSON: Here's how they handle the person with a substandard policy. Know this!
MR. WATSON: Let's say he's got a detached retina. So we can cover his detached retina and charge him more money. Do you agree?
ALL: Yes.
MR. WATSON: So the insurance company can
- Cover him and charge him more money.
- They can exclude his condition and charge him the same amount of money, or
- They can limit the policy. Instead of a plan with a three month elimination period they give him a longer one, perhaps six months. They put limitations on his policy.
WOMAN: You mean exclude his disease?
MR. WATSON: Exactly. Exclude the detached retina.
Premium Factors
MR. WATSON: Don't confuse premium factors with risk factors. Now we're talking about premium factors.
Primary Premium Factors
MR. WATSON: Primary premium factors, we're not talking about secondary; we're talking about primary premium factors.
MR. WATSON: The acronym is M.I.X. Same thing as life insurance premiums, but now the "M" stands for morbidity .Morbidity tables tell the companies how many people at any given age can be expected to become disabled and how long that disability will last.
MR. WATSON: What's the "I" stand for?
ALL: Interest. The higher the interest the company earns, the lower the premium.
MR. WATSON: And the "X" stands for what?
MAN: Expenses. High expenses, higher premiums.
Secondary Premium Factors
MR. WATSON: Benefits. The greater the benefits, what happens to the premiums?
ALL: Higher.
MR. WATSON: Past claims experience. This is the insurance company's track record of paying expenses. Tables are put together as to how much the expenses were for hospital stays, etc. The insurance company adds a factor to account for rising hospital costs and this enables the company to estimate future costs. Past claims experiences.