3 Ages in Life Insurance – Original, Attained & Basis
The three ages you need to understand in life insurance are original age, attained age, and age basis. The concepts are scarcely complicated enough to merit industry-specific jargon, but without a little bit of explanation, they may yet throw you for a loop.
–When you start a life insurance policy–
When you apply for coverage, two of the main factors that affect the price you are offered are the health and age of the person (or people) that you intend to insure. You may find to your surprise that the insurance company where you apply evaluates the health of the insured differently than you did and, consequently, the rate class which it assigns to him/her is more or less expensive than your life insurance quote led you to expect. For most people, that’s an understandable discrepancy, but what may really cause you consternation is learning that the insurance company has evaluated the age of the insured differently than you did!
“Age basis” refers to the age that the insurer considers the insured to be. This is the age that is plugged into actuarial formulae to calculate cost of insurance. With some insurance companies, age basis is equal to age (as the layman would reckon it). With others, though, age basis is based upon the insured’s nearest birthday. That means that six months before his/her birthday, his/her age basis increments by one year.
If you find that your age basis differs from your age, don’t worry. The insurer isn’t picking on you. It has merely decided that all of its calculations are more accurate when an insured’s nearest birthday is used. If you selected the appropriate rate class, your offer should still coincide with your quote (you don’t need to enter a date six months before your birthday onto the quote form).
-During the life of your policy-
Generally speaking, it is the “original age”-the age basis of the insured at the time of the policy’s inception-that determines a policy’s cost of insurance (COI). With term life insurance and whole life insurance, this is a simple matter that requires no greater elucidation, but with universal life insurance, the COI actually increases yearly to reflect the insured’s current age.
-At the conclusion of your policy-
Term life insurance promises coverage for only a certain period–typically 5-30 years. Once that term of coverage is over, your policy will terminate. However, it is not uncommon for an insurer to provide one or more conversion options, that is, permission to convert your term insurance policy into a permanent insurance policy. Just what type (or types) of permanent policy you may choose is the insurer’s prerogative.
In conversion, the amount of coverage you carry remains the same, as does your rate class: if you held a $1 million policy under Standard rates before conversion, you’ll have a $1 million policy under Standard rates after conversion. However, the cost of insurance for your new permanent policy will no longer be based upon your term policy’s “original age.” Instead, the permanent policy’s cost of insurance will be based upon the insured’s current age, which is called his/her “attained age” in life insurance jargon.