How does underwriting affect my life insurance?

What is life insurance underwriting?

You may have heard of the term ‘insurance underwriter’, – but you may not know that the vast majority of life insurance policy applications go through an underwriting process.

The setup of your life insurance policy is based on the assessment of a few factors, like the available benefits, the likelihood of each benefit being paid out in your case, and what that would typically cost the insurer. This assessment is known as ‘underwriting’. It’s how insurance providers work out the risk of providing your cover and make sure they charge you a fair price.

How underwriting can affect your policy and how much you pay.

Many things are taken into account during an underwriting assessment for your life insurance policy. Apart from the types of cover included and the pay-out value in each case, the underwriting process will consider your individual risk factors.

An insurance underwriter uses your risk factor information to identify the likelihood of you making a claim. The less likely you are to make a claim, the less financial risk you present to the insurer, so you’ll pay less month to month.

If there’s a high chance of you making a claim for something, an underwriter might apply exclusions from your cover or give you the option of paying more to have it included.

Here’s a quick summary of the main risk factors considered during underwriting.

Medical underwriting.

This looks at health factors, which typically include:

• Health conditions – if you have a serious illness, other chronic condition or any injuries that impact your health, this may increase your premium. Alternatively, an underwriter may amend the terms of an offer that wouldn't provide cover for claims arising from that condition.
• Family medical history – if there’s a history of a particular hereditary illness in your immediate family, such as breast cancer for example, an underwriter may recognise an increased risk. This could lead to adjustments to your premium, exclusions or a policy being deferred (meaning the insurer may choose not to offer you cover at all at that point in time).
  
  

Financial underwriting.

Financial underwriting determines the maximum amount of cover the insurer is prepared to offer in your policy, and can also impact whether you’re eligible for certain covers.

If you’re 35 or younger, an underwriter might be prepared to offer something like up to 30 times your income for life cover. However, if you’re older, this amount may be lower. Normally, there’ll also be a maximum cover limit, no matter how high your income is.

You can still choose the right amount of cover for your needs and budget, but it can’t be more than the maximum the insurer is prepared to offer in your case.

Occupational underwriting.

Most occupations won’t affect your ability to get life insurance. However, some jobs present a much higher risk and might therefore attract a higher premium, and certain covers may not be available at all to those in certain careers (such as underground utility work).

Hazardous pastime underwriting.

New Zealanders enjoy a wide range of pastimes and most represent no additional risk to insurance underwriters. However, cover for some high-risk activities (like mountaineering or motor racing) may be excluded from your policy altogether or specifically included in return for paying a higher premium.

Can you get a life insurance estimate before the underwriting process?

At Fidelity Life, you certainly can. Each insurance company has its own application process, but here’s a summary of how to get life insurance with us and where the underwriting comes in.

Step 1 – Estimate.

You contact a financial adviser for a no-obligation chat. They can suggest suitable types of life insurance for your situation and needs. They’ll also explain the relevant benefits of each one and answer any questions you might have. You only have to provide some basic details for us to give you an estimate of the premiums for cover you’re interested in. This estimate is based on age and sex at birth, and doesn’t take additional risk factors into account – that part comes next.

Step 2 – Application.

If a policy and its estimated premium sound good, the next step is to fill out an application form to provide more details about yourself. This is the stage where you’ll need to answer a series of questions, and also let us know of any additional factors that could affect your level of risk. Your adviser can help with this if you’re not sure.

Step 3 – Underwriting.

This is where the insurer goes through your application and works out how risky it would be to provide you with cover.

Step 4 – Information.

You may be asked for more information to help with the assessment. This could mean answering a question or 2, but you may also be asked to take medical tests or provide other evidence.

Step 5 – Decision.

After looking through all the information you provided, our underwriters will come back to you with their decision. This is where you’ll find out the results of your assessment, what your premiums will be and whether there’ll be any exclusions on your policy.

Step 6 – Welcome!

With your life insurance policy sorted, it’s time to start enjoying the peace of mind it can provide. All you have to do is make sure your premiums are paid on time. No doubt your circumstances will change over the years, so your adviser will be able to help you review your insurance needs or answer any questions you may have.

Ready to find out more? Get in touch.

How to get life insurance advice.

A financial adviser who’s qualified in life insurance can suggest options and help you select cover that’s right for your needs. They’ll also provide premium estimates for policies you’re considering, and give you more guidance around life insurance underwriting. Simply get in touch with us and we’ll help you find a financial adviser. near you.

DISCLAIMER: The information contained in this article is a summary of the key points of underwriting and is general in nature. This article does not constitute a financial advice service. All covers are subject to the definitions, standard exclusions/limitations, terms and conditions contained in the full policy documentation which is available from Fidelity Life or your financial adviser who holds a Distribution Agreement with Fidelity Life. All applications for cover are subject to underwriting criteria.