Underwriting is the process of assessing how likely it would be for a person to make a claim.
The lower the likelihood, the lower the premium.
Underwriters take into account a number of factors.
For example, with life insurance the following are key factors in the assessment of chance a person is likely to make a claim.
Unfortunately while you get wiser with age, your chance of passing away or having a critical illness or debilitating disease or injury increases. The older you are, the higher the likelihood that you would make a claim. (The higher the Risk)
Interestingly this has just as much to do with behaviour as it does for the differences in physiology. Often you will find life cover for men to be more expensive than women, but the opposite holds true for Trauma and Income Protection. Women tend to address problems as they arise, so are more likely to claim on Trauma and Income Protection. Men on the other hand tend to ignore medical issues and end up claiming on Life cover.
Your height and weight
The population is getting heavier. Recent studies have listed Kiwi's as the third fattest nation in the developed world. This has also seen a direct increase in the number of diabetics in the population. If your BMI is over 30, insurance companies will often start to charge you more for your cover. If your BMI is over 40, expect the insurance company to withdraw Trauma Cover and Income Protection. And if it's over 45, historically we have found it difficult to secure Life cover.
Whether you smoke
Numerous studies have concluded that smoking causes pre-mature death and diseases. If you have stopped smoking or have reduced smoking, we may be able to assist with improving your current premiums. With some companies, cigar and pipe smoking is not seen to be as risky as cigarette smoking.
Whether you drink
Insurance companies don't expect you to be a teetotaller. However if you are a heavy drinker they may look to modify cover.
Your medical history
If you have had abnormal tests or health conditions in the past, they give an indication about your future risk. Not all incidents in your history will affect your cover but full disclosure will give you the certainty of the answers for you now and your claim later.
Your family history
As medical technology has advanced, people are surviving more than they used to. This has also increased the identifiable relationship between you and your future conditions based on your parents and siblings conditions.
Where you source your income and what you do to earn it.
Some occupations are riskier than others. Accountant vs. say an underground Miner. Insurance companies don't have a problem with the Accountant. Where as for the Miner, we find difficulty placing Life cover. If you work in a risky environment or at heights, underwriters will look to exclude you for certain activities or charge you more for the cover to mitigate the risk (loading).
Other activities you do.
Activities outside what is considered to be reasonable for an individual on the street that may have risks attached. Like professional sports, extreme sports, competition activities like motor racing and martial arts.
Why do you need the cover? Can you demonstrate a potential financial loss for the policy you are taking? If you can justify there is a financial risk you are transferring then the insurance company will look more favourably on the cover amount you have asked for. There are limits on how much cover you can have on each product. These limits are generally larger than you will require in all but in most extreme situations.
Will I need to have tests done?
Possibly, if you are applying for cover over certain amounts you will probably be asked to have blood tests done. These will be similar to the ones your doctor would ask for if they were doing a routine screening check up. If you have certain medical conditions the underwriter may ask for tests to clarify your current conditions, or they may ask for your medical notes.
Yes the underwriters often ask for these to clarify your medical conditions. We recommend giving the underwriter full medical notes at underwriting where possible to ensure that you don't inadvertently non-disclose your medical history.
What is non-disclosure?
Non-disclosure is information that wasn't given to the underwriter at underwriting that would have had an influence on their decision to offer you cover.
Often this is discovered at claim time and it impacts on claim payment. Non-disclosure is often inadvertent; you know it but forgot the details at the time.
An insurance contract is a legal document and is based on what you could reasonably be expected to know. So if you have had a condition and you don't disclose it you may put a future claim at risk. As stated in the previous paragraph, we recommend providing the underwriter your full medical notes where possible to mitigate this risk.
This is where the insurance contract is modified from the company standard contract because of your increased risk situation. There are generally four possible modifications.
Loadings - Where the premium is loaded because of a general increased risk. A 50% loading will mean you pay 1.5 times the standard cover amount.
Per Mille Loading is used where there is an identified 'extreme' risk. This is a loading per $1,000 of cover per year above any other loading and on top of the standard premium.
Exclusions, unlike loadings where the original policy risks are still covered however at a higher premium, exclusions mean that a particular risk, condition or activity is not covered by the policy. Exclusions could also be used in conjunction with a loading in some cases.
Decline to cover; in a number of situations your cover may be declined. This doesn't always mean you can't ever get cover, it's often a case of not right now.
It could be that you have recently developed a condition and it's not yet stabilised.
It could be you have had a change of medication and the underwriter wants to see you stable.
It could be due to the destination you plan to travel to soon, it could be your stage of pregnancy.
It could also be your work situation if you are applying for income protection benefits.
All situations are unique and often your Adviser has ways to work through them to manage risk.
It might be insurance isn't available right now or a different insurance product is required.
Before you purchase, in all cases its best to get your insurance cover underwritten by the insurer as this will ensure a future claim gets approved and you know what you are and aren't covered for.
Without getting proper advice from a professional Insurance Adviser and not getting your policy underwritten first, you may find your paying for insurance that you can't claim on. This is where buying insurance online especially or through a bank can be a bit of a trap. It's always best to get it checked by an Independent Insurance Adviser.
Shaun Nicol is an Independent Insurance Adviser.
New Zealand Registered Financial Services Provider: FSP272065
"My mission is to make your insurance affordable, now and for your life time."
Please contact me:
T: 06 870 3012
M: 0210 391 899
Shaun's advice and service is free.
He can talk it through with you over the phone, via email, skype or meet with you in person at your place or his unique Garden Office.
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