Flat Extra: Life Insurance's Hidden Cost Explained

A flat extra, also known as a flat extra premium or flat extra charge, is an additional charge on top of the standard premium for a life insurance policy. This extra charge is applied when the insurance company deems the insured person to be high-risk due to factors such as medical conditions, occupation, or risky hobbies. The flat extra is usually indicated as a rate per $1,000 of coverage and can be either temporary or permanent, depending on the nature of the risk. For example, a temporary flat extra may be applied for a specified number of years following a cancer diagnosis, while a permanent flat extra may be added for high-risk occupations like racing or mining. Flat extras significantly increase the cost of life insurance, making it challenging for high-risk individuals to obtain affordable coverage.

Flat extras are charged per $1,000 of coverage

A flat extra premium is an additional charge on top of the standard premium for a life insurance policy. It is charged per $1,000 of coverage and is used to mitigate the risk for insureds who are deemed high-risk by the insurance company. This could be due to a medical condition, occupation, or avocation. For example, if you have a flat extra premium of $5 per $1,000 of coverage and you're buying a $500,000 policy, you would pay an extra $2,500 annually to cover the flat extra charge.

The formula to calculate the flat extra expense is as follows:

Face Amount/$1000 x Flat Extra Rate = Expense Charge Per Year)

For instance, a $100,000 life insurance policy with a flat extra of $6 per thousand for three years would result in a yearly expense of $600 added to the standard life insurance rate.

Flat extra premiums can be either temporary or permanent. Temporary flat extras are typically used for most medical conditions and last for a set period, often between one and five years. On the other hand, permanent flat extras are applied for the entire life of the policy and are usually associated with the insured's occupation or avocation.

It is important to note that not all life insurance companies charge the same flat extra rate, and it is possible to reduce this expense by re-shopping the market each year.

To determine your health class rating, insurance companies assess your health and lifestyle, categorizing applicants into different risk classes such as Preferred Best, Preferred, Standard, and Preferred Smoker/Smoker. If you don't fit into a standard risk class, flat extra ratings may be applied to your policy to account for the heightened risk.

Flat extras are added due to medical conditions, occupations, or avocations

A flat extra is an additional premium charged by life insurance underwriters that is added to a standard life insurance rate. This premium represents the excess mortality risk of your medical condition, occupation, or avocation. The cost is indicated as a rate per $1,000 of coverage. Flat extras are usually added due to medical conditions, occupations, or avocations.

Flat Extras Due to Medical Conditions

Most medical conditions result in temporary flat extras, lasting five years or less. Cancer survivors, for instance, often have to pay flat extras, and this includes breast and prostate cancer survivors, as well as people with HIV and those treated for alcohol or drug abuse. On rare occasions, flat extras may be used for stroke victims. However, flat extras are not used for heart conditions or GI conditions like Crohn's disease or ulcerative colitis.

Flat Extras Due to Occupations

Most occupations do not require an additional expense. Occupations such as police or fire are not typically rated. However, certain jobs are assigned an occupation class that determines whether the employee needs to pay more for life insurance. Industries such as commercial fishing, logging, and mining may receive an occupation class rating on the lower end. Astronauts, professional race car drivers, and boat racers receive the most expensive ratings, while military and special forces typically receive ratings somewhere in the middle.

Flat Extras Due to Avocations

Avocations refer to high-risk activities such as sports and hobbies. These include scuba diving, mountain climbing, private aviation, skydiving, and motorized racing. The level of experience is a significant factor in determining the life insurance rate. Underwriters assess whether an individual is operating at their level of proficiency or pushing the boundaries of their technical experience. For example, underwriting guidelines for private pilots have been tightened due to an increase in pilots with minimal experience. Life insurers understand that scuba divers may dive deeper for a certification dive, but consistently diving to greater depths than 100 feet may result in a higher rating. Cave and shipwreck divers will receive a flat extra.

Flat extras are temporary or permanent

Flat extras are additional costs on top of standard life insurance rates. They are used to price high-risk life insurance and are determined by an individual's health, occupation, or avocation. Flat extras are typically charged per $1,000 of coverage and can be either temporary or permanent.

Temporary flat extras are often applied to individuals with medical conditions or those who engage in risky activities. For example, someone who has recovered from breast cancer may be charged a temporary flat extra of $5 per $1,000 of coverage for four years. After this period, the flat extra charge is removed, and the individual pays the standard rates. Similarly, if an individual engages in risky activities like skydiving, they may be charged a flat extra of $3 per $1,000 of coverage for a temporary period. If they choose to stop participating in the hazardous activity, their insurance agent can negotiate to remove the flat extra from the policy.

On the other hand, permanent flat extras are typically associated with an individual's occupation or avocation. For instance, astronauts, professional race car drivers, and boat racers may receive permanent flat extras due to the high-risk nature of their occupations. These flat extras remain in place for as long as the individual holds the life insurance policy.

It is important to note that flat extras vary among insurance companies, and it is beneficial to shop around and compare rates and durations offered by different insurers. Additionally, being open and honest about health issues and risky activities can help insurance agents find the most favourable coverage options for their clients.

Flat extras are added to standard life insurance rates

A flat extra charge is an additional premium that is added to standard life insurance rates. This extra charge is applied per $1,000 of coverage. For example, if your flat extra premium is $2.50 per thousand and you are buying a $100,000 policy, your additional cost would be $250 per year. This cost can be added to your policy for the entire duration or for a shorter period, such as 3 or 5 years.

Flat extras are added when insurance companies identify an elevated risk and need to offset potential future financial losses. This could be due to a serious illness, such as cancer, or engaging in dangerous activities like skydiving or racing. It is also considered in relation to a person's occupation, with astronauts and race car drivers receiving the most expensive ratings.

The flat extra charge is usually applied when an insured individual has had a recent sickness that an underwriter deems as still leading to extra risk. It increases the premium much more dramatically than a table rating, which is a permanent rating that can cause varying degrees of increases to the original premium.

There are two types of flat extra premiums: temporary and permanent. A temporary flat extra is applied when there is a risk factor, such as a cancer diagnosis, and is charged for a specified number of years before being removed. A permanent flat extra is applied when there is an occupational or avocational risk and remains for as long as the policy is in force.

Flat extras are calculated using a formula

Flat extras are additional charges added to standard life insurance rates to account for excess mortality risk due to an individual's medical condition, occupation, or avocation. This extra charge is calculated using a formula that factors in the face amount of the insurance policy and the flat extra rate.

The formula for calculating the flat extra expense is as follows:

Face Amount / $1000) x Flat Extra Rate = Expense Charge Per Year

For example, let's consider a $100,000 life insurance policy with a flat extra rate of $6 per thousand for three years. Using the formula, we can calculate the yearly expense added to the standard life insurance rate as follows:

$100,000 / $1000) x $6 = $600 yearly expense

This means that the individual will need to pay an additional $600 per year on top of the standard life insurance rate due to the assessed risk.

Flat extras can be either temporary or permanent. Temporary flat extras are typically applied for medical conditions and last for a set period, such as three to five years. On the other hand, permanent flat extras are usually associated with an individual's occupation or avocation and remain in effect for as long as the policy is active.

It is important to note that flat extras vary across different insurance companies, and it is beneficial to shop around and compare rates to find the most favourable terms. Additionally, certain activities or conditions may be excluded from coverage to reduce the flat extra expense, although this is generally not recommended unless the activity has been discontinued.

Flat extras are calculated using a straightforward formula that takes into account the face amount of the insurance policy and the flat extra rate per $1000 of coverage. This calculation helps determine the additional expense that will be incurred annually due to the assessed risk factors.

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