10.3 Preferred to Declined, Rated Policies, TIA, Group Non-Evidence Maximums, Reinsurance
Key Takeaways
- Client-level factors that move premium are age, health, gender, occupation, family history, and lifestyle (including tobacco and avocations).
- Outcomes run from preferred classes through standard, substandard (rated) policies, postponement, and decline; a rating is extra premium or another modification, not an automatic refusal.
- Basic and minimum group life is typically issued up to the plan’s non-evidence maximum without individual medical underwriting; additional or excess amounts require evidence of insurability.
- A temporary insurance agreement, if offered, gives limited interim coverage only when its conditions are met and usually ends when the policy is issued, declined, withdrawn, or the TIA period expires.
- Reinsurance lets the ceding insurer transfer part of the risk automatically under a treaty or facultatively case by case, to gain capacity, expertise, capital relief, and more stable results.
Client-level factors that move the rate
CISRO’s remaining 3.1 concepts are the client-level factors that increase or decrease premium (age, health, gender, occupation, family history, lifestyle), substandard risks and rated policies, the rule that no underwriting is required for basic and minimum amounts of group life (underwriting only for additional coverage), temporary insurance agreements (TIAs), and reinsurance (how it works and why companies use it). This independent OpenExamPrep section helps learners study those outcomes. Implementation later in this guide returns to how a TIA sits in the application package beside a signed illustration; here the TIA is an underwriting-period device.
| Factor | How it usually moves mortality / premium | Exam trap |
|---|---|---|
| Age | Older issue age, higher mortality; nearest-age versus last-birthday methods are contractual | Treating a 20-year term premium as if age never increased at renewal |
| Health | Build, blood pressure, diabetes, cancer history, mental-health treatment, etc. | Assuming a clean paramedical erases an APS history |
| Gender | Individual Canadian life still commonly uses sex-distinct rates; some group schedules are unisex | Importing a foreign “unisex individual life” rule as Canadian statute |
| Occupation | Extra hazard → flat extra, exclusion, or decline | Leaving occupation blank because “the medical exam was fine” |
| Family history | Premature coronary disease or specified cancers in first-degree relatives can block preferred or add a rating | Treating a grandparent’s death at 85 as a preferred knockout |
| Lifestyle | Tobacco, some cannabis guidelines, alcohol, drugs, avocations, travel, criminal history | Coaching “non-smoker” while the client uses nicotine daily |
Worked file: Harpreet Gill, 45, Winnipeg, male, 20-year term $500,000, well-controlled hypertension, father died of a heart attack at 52, recreational private pilot, cigarettes stopped four months ago. Age and male sex set the base table. Health may still be standard or mildly substandard depending on readings. Family history can keep him out of preferred. Aviation is often a flat extra per thousand of face rather than a table extra. Four months smoke-free usually fails preferred and often fails non-smoker definitions that want a longer stated period (commonly 12 months in company guides — confirm, it is not a CISRO-published national number). The underwriter can still offer a policy.
Preferred through declined, and what a rated policy is
Individual fully underwritten life is not binary. Typical outcomes:
- Preferred plus / preferred — better-than-average mortality on the company’s checklist (build, lipids, family history, nicotine, driving, avocations).
- Standard — the baseline healthy class the illustration often assumed.
- Substandard / rated — extra mortality the company will still insure, with a modified offer.
- Postpone — not now (unstable illness, pending surgery, a trip into an uninsurable region). Reapply when the guideline window opens.
- Decline — outside guidelines even with extras; may still be a candidate for guaranteed-issue or simplified products, which are different underwriting regimes.
A rated policy is an issued contract, not a refusal. Common modifications:
| Tool | Mechanics | Typical use |
|---|---|---|
| Table extra (percentage extra mortality) | Premium loaded as if mortality were +25%, +50%, +100%, and so on; scales differ by company | Chronic medical extra mortality |
| Flat extra | Extra dollars per $1,000 of face, sometimes temporary (for example five years) | Occupation, aviation, some injuries |
| Exclusion rider | Named activity or cause not covered | A sport the client will not stop |
| Reduced face or fewer riders | Issue what financial or medical guidelines will bear | Jordan Kim’s $5 million request becoming $1 million |
| Rated age | Charge as if the life were older | Some older rate books; know the idea |
Do not memorize “Table 4 always equals +100%.” Teach that extra premium buys extra mortality the company quantified. Harpreet might receive standard non-smoker plus an aviation flat extra, or smoker rates plus a table extra for blood pressure — two different levers. Present the revised illustration honestly. A client who only signed a preferred illustration has not yet accepted the rated offer; implementation covers delivery and counter-offers.
Group life: no individual underwriting on the basic minimum
CISRO’s sentence is exact: no underwriting required for basic and minimum amounts of group life insurance; underwriting only for additional coverage. That is the non-evidence maximum (NEM) / guaranteed-issue idea from the group-product chapter, restated as an underwriting rule.
Worked file: Prairie Grain Co-op covers full-time employees with 2× salary basic group term, NEM $250,000, optional units above that. Maya Singh earns $180,000, so the formula amount is $360,000. She receives $250,000 without a paramedical, APS, or MIB individual file, provided she meets class eligibility (hours, waiting period, actively at work). The extra $110,000 is additional coverage: evidence of insurability, and it can be rated, reduced, postponed, or declined even though she already has basic life. Late entrants who skipped enrolment often need evidence even for amounts that would have been GI at hire. Optional employee-paid life is additional coverage. Dependent amounts may have their own GI schedules.
Basic group life is not preferred-class underwriting. The insurer priced the group using census data, participation, and pooling or experience. Individual medical anti-selection is controlled by the NEM, actively-at-work, and enrolment windows — not by a build chart on Maya’s basic slice.
Temporary insurance agreements (TIAs)
A TIA (also taught as temporary or interim insurance; some receipts are called binding or conditional) is a separate, limited promise that may cover the proposed life while underwriting runs. It is not automatic with every app, and it is not a guarantee that the applied-for policy will be issued at the illustrated class.
Typical conditions — read the form, carriers differ — include:
- Signed life application and often a separate TIA application
- Payment of at least the stated minimum (for example one monthly premium at standard rates, or a PAD authorization)
- Answers that would not make the TIA void for material misrepresentation
- Proposed life within the TIA’s age and amount limits
- Sometimes a health statement that the life is insurable at least at standard, or has not been treated for listed conditions
Start. Coverage under one widely used Canadian wording starts when the life application and TIA application are signed and the TIA payment is received — not when the advisor first talked about insurance.
Stop. Temporary coverage usually ends at the earliest of a stated period (often around 60–90 days; one published carrier example uses 90 days from the application date), the date the applied-for policy takes effect, mailing of a termination notice, the owner refusing delivery or withdrawing, or death (the claim event). Confirm the candidate’s specimen in the e-book; do not treat 90 days as a statute.
Limits and holes. Face is capped (company maximums commonly sit in the hundreds of thousands up to about $1 million — illustrative range, not a national cap). Suicide is typically excluded. Material misrepresentation can mean no TIA ever attached. If underwriting later declines, the TIA still may have covered a death that occurred while it was in force, if conditions were met; if the TIA never attached, there is no interim cheque. Premium for the TIA is generally refunded if the TIA terminates without a covered death, except in fraud. A later implementation section treats how this sits beside delivery; the 3.1 point is that underwriting risk during the wait is managed by a conditional, capped contract, not by “the illustration already binds the company.”
Worked file: Amina Diallo applies, signs the TIA papers, and the PAD for one monthly standard premium clears. She dies in a car accident on day 20, before the APS returns. If TIA conditions were met, the insurer’s TIA limit is the claim, not necessarily the $2 million preferred illustration. If Amina had omitted a listed terminal diagnosis, the TIA wording may say it never took effect.
How reinsurance works, and why companies use it
Reinsurance is insurance for insurers. The ceding company (direct writer that issued, or will issue, the policy to the client) transfers part of the mortality risk to a reinsurer in exchange for a reinsurance premium. The client’s contract remains with the ceding insurer. The beneficiary does not sue the reinsurer on a routine death claim.
| Mode | How it works | When it shows up on a file |
|---|---|---|
| Automatic (treaty) | A standing agreement cedes a share or the excess over retention if the case meets age, amount, rating, and jumbo tests | Fast issue; the field may never hear the reinsurer’s name |
| Facultative | The reinsurer underwrites that life and may accept, rate, or refuse | Jumbo faces, heavy substandard, or cases outside the treaty |
| Quota share | Reinsurer takes a percentage from the first dollar | Surplus relief and partnership on a product line |
| Excess / surplus | Ceding company keeps a retention (for example $1 million teaching figure) and cedes the rest | Capacity on large key-person and personal cases |
Worked file: Northwind Cabinets Inc. wants $8 million of key-person coverage on the founder. Illustrative mechanics only: the direct writer’s retention is $1 million, automatic treaty capacity another $4 million, remainder facultative. The facultative reinsurer may demand extra labs or decline its share, which can stall or reshape the offer even if the ceding company’s own underwriter liked the case. Jumbo limits look at all inforce and pending coverage on that life across companies — Jordan Kim’s stacking problem again.
Reasons companies use reinsurance (CISRO asks for reasons, not a treaty form):
- Capacity — write faces larger than the company will keep on one life.
- Stabilize results — avoid one claim wrecking a small block.
- Catastrophe / concentration — several insureds in one firm or one event.
- Capital / surplus relief — holding less net risk can ease capital strain (OSFI-regulated insurers care about this; you do not need a capital formula on the Life paper).
- Expertise — reinsurers see more rare impairments and jumbo financials.
- Product support — launch a preferred program or a new UL series with a partner sharing mortality.
Harpreet Gill is a 45-year-old applicant with recent nicotine use, a family history of early coronary disease, and private-pilot hours. Which statement correctly describes individual underwriting outcomes?
Maya Singh’s employer plan is 2× salary with a $250,000 non-evidence maximum. Her salary is $180,000. Which statement matches CISRO’s group-life underwriting rule?
Amina Diallo signs TIA papers and a PAD; Northwind Cabinets applies for $8 million of key-person coverage that exceeds the direct writer’s retention. Which statement is correct?