Attained Age vs. Issue Age vs. Community Rated
I get this question from time to time. Apparently, several websites, YouTube videos, and forums have some information about this topic that is loosely worded. It seems to lead folks to the conclusion that an Issue Age rated policy is the best.
Let’s break them down:
This basically means that you get a premium based on your age, and there are some built in increases for age. These plans also reserve the right to increase due to inflation and other factors such as claims experience.
Typically, these plans are where you get your lowest premium to begin with.
Policy premiums are based on the age of the policyholder when the policy is issued. They do not increase with age. The problem is, the premium is very high to begin with. In some cases, you may be paying what an 80-year-old would pay when you’re just 65. It is true they do not increase with age, but they will still have rate increases when claims increase.
Some states have mandates in places that require companies to operate this way, but most don’t.
Community rated policies are a little higher at first, but on older folks they can be cheaper.
I can only think of one company in most states that uses this method. Community rated is referring to the idea that you get a rate based on an age group. For instance, one rate may be offered to anyone ages 65-72 or 72-78. They also often do not differentiate premiums for gender. That’s not so good for women, since their premiums are generally lower in the other categories.
Also, this concept is extremely deceptive, since they often offer age related diminishing discounts. For example, you may get a 30% discount at 65, a 27% discount at 66, a 24% discount at 67 and so on. So, essentially, your policy starts out higher, and still goes up for age. Not to mention they are still allowed to go up based on claims loss ratios. Their agents will tell you that your rates won’t go up. What they don’t tell you is that your discount goes down 3% per year starting in year two. So, in other words, your rates go up.
The Big Picture
Here it is folks. The answer to this dilemma. There is no secret to avoiding the “big increase”, just like there isn’t a diet pill that allows you to sit on the couch, eat potato chips, and lose weight.
Here is how an independent agent would can solve this riddle.
First, we would assess the client’s health. We would make a decision based on the likelihood of being able to change them from company to company in the future. We would then shop the different prices available on the plans, and use rate increase histories and personal experiences with companies to make a recommendation to our client on what will be the best decision for a likely long-term savings on a plan that they will be extremely satisfied with.
We cannot guarantee any sort of rate increase or lack thereof, but we can make an informed decision based on experiences and rate histories. We do not put people in a plan that has the highest commission. Generally, there isn’t much of a difference.
Our goal is to keep our client as happy as possible, for as long as possible.