The life insurance model is about providing protection against risk. While buying life insurance, keep in mind that the policy will provide financial security to your family in case of the buyer’s unfortunate accidental death. In other words, people have this thought in their mind that after their death, their family will not have any kind of financial support. For this, they pay a premium. Similarly, the insurance company also protects itself from the risks associated with its day-to-day operations of issuing policies to customers. Just as a life insurance company acts as a financial risk manager for you, similarly a reinsurance company protects the financial risks of insurance companies. These reinsurance companies set some guidelines for life insurance companies. Life insurance companies have to follow these guidelines while issuing policies to customers.
What is underwriting?
Under this, life insurance companies assess the risk associated with each person purchasing an insurance policy and decide an appropriate premium rate for that risk. In short, underwriting is the process through which life insurance companies determine a customer's eligibility for a policy. This is one of the most important aspects of life insurance policy issuance as careful and accurate risk assessment allows life insurance companies to provide the best service to their customers, find new solutions, issue policies to more people and in more effective ways. It also helps in settling the claim.
The life insurance company assesses your policy eligibility keeping in mind factors like your age, income, profession, lifestyle, previous medical conditions, cause, body mass index, etc. Keeping these parameters in mind, companies classify underwriting into two major categories:
Financial underwriting
The company considers your income, job, stage of life and your ability to pay the premium for the policy term to determine whether the life-cover you wish to purchase suits your and your dependents’ needs.
Medical underwriting
In the industry, this is commonly referred to as 'mortality assessment'. This aspect of underwriting is related to your age, lifestyle, habits like smoking, drinking, etc. Along with this, its purpose is to assess on the basis of your family history whether you are likely to suffer from any kind of disease.
More on financial underwriting
Financial underwriting is the process that the insurance company uses to calculate what amount of life cover will be sufficient for you. When you show interest in purchasing a life cover of a certain amount, the insurance company does a complete analysis of your financial condition.
In this stage, you have to provide documents like salary slips, bank statements, telephone bills, electricity bills, passports, Aadhar cards, and income tax returns. If there is already an insurance policy in your name, then you have to provide details of that also. Although some customers find this entire process quite cumbersome, it helps your insurance companies assess your overall risk profile. Many times it happens that you overestimate life insurance and for this, you have to pay an unnecessarily high premium. On the contrary, if you think of taking a lesser policy than your requirement, then the company offers you a better value policy. Financial underwriting helps you avoid any of these pitfalls and provides you with better service.
More on medical underwriting
Don't hide anything from your doctor...and life insurance provider. The importance of providing all types of information regarding medical history while purchasing the policy cannot be underestimated in any way. This includes information related to the medicines you take regularly, any previous hospitalizations, any minor or major surgeries you may have in the future, and any pre-existing medical conditions.
When you apply for a life insurance policy, a representative of the company calls you to conduct medical tests and/or collect samples. These tests are very important because the reports of these tests confirm your health at that time. The test results decide everything from determining your premium to claim settlement.
All these aspects are taken into consideration while issuing the policy. If any discrepancy is found between the reports of your medical tests and the information provided by you while applying for the policy, it leads to unnecessary delay in the policy issue and may even lead to rejection of your application. Also, when you agree to the terms and conditions, it is considered that you were transparent about your medical history.
This is seen as 'highest confidence'. Intentionally not disclosing important health-related information while purchasing the policy can affect the claim settlement process.
Some buyers feel that disclosing any pre-existing disease will either result in the policy not being covered or will have to pay a higher premium. However, most insurance providers start covering these diseases after a short waiting period. In such a situation, if you hide information from the insurance provider, you get some relief from the fact that your premium does not increase, but later when it is revealed that you had deliberately hidden something, then this thing can cost you more. It becomes expensive. As a result, your family members for whom you had taken the insurance cover will be at financial risk.
While giving health-related information to the insurance provider, it is advisable to give as much detailed information as possible. This way the underwriting system will work completely in your favor as the most appropriate premium will be determined, the policy will be issued to you quickly and the chances of the policy or claim being rejected will be reduced. On the other hand, it will help in increasing the value of the policy in the long term.
