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What Is the Importance of Underwriting in Life Insurance?

Last modified: 13 Apr 2013

What is Underwriting and Why is it Important?

Underwriting is the process of determining an applicant’s risk level and this process helps insurers understand if the applicant should be given an insurance plan or not.  Underwriting is very important mainly because, the underwriting process determines if the applicant can get life insurance or not. In addition, this process can determine what level of coverage you get along with what sorts of exclusions will be applied to your policy. The amount payable towards premiums and other important terms of your policy will also be determined by this process.


What Kind of Impact does Underwriting have on a Life Insurance Policy?

When an applicant fills out an insurance application form or decides to purchase a policy online, his application is sent to the insurer. The insurer in turn sends the application to an underwriter or risk assessor. Various factors are taken into consideration before the underwriter decides if you should be given a policy or not, how much you should pay towards premiums every year and which benefits you should get.


What Factors are Considered By the Underwriter?

Probable factors are considered by the underwriter before he decides if an applicant is eligible to get a policy with maximum benefits. These probable factors take into consideration various scenarios and determine if the applicant is likely to file one or more claims while the policy is active. The applicant’s age, gender, genetic medical history and current health conditions are a few of the factors used to determine the eligibility of the applicant. In addition, the underwriter may consider other factors such as the applicant’s occupation and nature of occupation before he gives a quote to the insurer.

Applicants are considered as medium risk to high risk candidates if they are 40 years or older, males with pre-existing health conditions, work in dangerous work environments such as mines, oil rigs, have a blue collar job, play rough sports or extreme sports and smoke cigarettes or consume other tobacco products. People with known genetic conditions may be considered as medium to high risk candidates depending on the nature of the genetic condition.


Can I Purchase Life Insurance if I am a High Risk Candidate?

While some selected insurers do not offer life covers to high risk candidates, majority of the insurers in Australia offer life insurance plans to medium – high risk candidates. People with pre-existing health conditions such as diabetes or heart problems can get life insurance plans in Australia. This being said, exclusions, loading fees and other restrictions may be applicable to such candidates. Exclusions may be applicable for people who play rough or extreme sports.

Premium loading fees may be applicable to people who have a pre-existing health condition or a known genetic condition. People who are high risk buyers may be asked to pay higher premiums compared to low risk buyers due to the reason that high risk buyers are more likely to submit one or more claims in their lifetime. It should be noted that insurance is a must for high risk candidates since they are more likely to need financial help when they are ill or injured and there are a few ways buyers can reduce the cost of premiums. Paying premiums annually in advance to the insurer and comparing quotes along with insurance plans before making a purchase are only two of the many ways buyer can save on premiums while buying a life cover.


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