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Why are some life insurance premiums rated?
The purpose of life insurance is essentially to provide peace of mind to the policyholder so that in the event of their death, debts are covered and any dependants are left financially secure. Premiums are paid to an insurance company, usually on a monthly basis. In return, the insurance provider will payout the guaranteed sum assured if you die during the term of the policy.
Life insurance premiums vary according to a number of factors, including the sum assured and the length of your policy, plus lifestyle factors such as age, occupation, gender, state of health and whether you smoke. In short, premiums are priced to reflect the risk of you dying during the term of the policy.
When you initially receive a quotation the insurance company makes its decision based on very basic criteria. That is gender, age, the sum assured and the policy term. As such they have to make certain assumptions about you. Namely, that you are in good health for your age and do not have a family history of ill-heath; that you do not have a hazardous occupation; that there is no family history of ill-health; and that you do not engage in any hazardous activities or sports or regularly visit countries with known health problems.
If the aforementioned assumptions are correct, then it is highly unlikely that your premium will be rated and your life insurance application will be accepted on what is known as “standard terms”. However, if you do fall into one of the above categories then your application for life insurance will be referred to their underwriters whose job it is to assess what risk you represent to them and therefore, what premium they should charge.
In order to reach a decision, underwriters will request further information, often a GP report or a medical examination for applicants with health problems, or they may simply require information from the applicant themselves and will issue a questionnaire for them to complete. Each case is looked at on an individual basis and once the underwriters have an understanding of the risk you represent, they may make an offer to accept you on “special terms”. It is then up to you to decide whether the increase in premium is acceptable or not. In particularly high risk cases they may decline to insure you at all. However, it also entirely possible that having requested further information they decide you do not represent any additional risk, in which case you would still qualify for the original premium.
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