In its simplest form, a life insurance policy is a contract between a policyholder and a life insurance company that determines the amount to be paid to the legal heirs or designated beneficiaries in the event of the early death of the insured person.
Life is full of surprises – that’s what makes it exciting – and this is also what makes it a little scary sometimes. Life insurance is something you can do today to protect your family tomorrow. It is about the lifestyle you and your family are living now and the lifestyle you would like to have in the future.
You are what you risk. That’s how a life insurance company looks at you. All risk factors count when you are assessed for life insurance. Your lifestyle is a big part of that.
You do not insure your life. You insure yourself against the risk of losing it. The premium you pay reflects the risk you are regularly exposed to. Managing your lifestyle to reduce the overall risk increases your eligibility for insurance and reduces its cost.
Ultimately, that cost depends on how well you manage your own health, safety and wellbeing. Several factors can increase or reduce the overall risk of your lifestyle, affecting your eligibility for life insurance and the amount premium you will be asked to pay. There is not much you can do about your age, but there are several other factors connected with your lifestyle over which you have control.
Anyone who has completed an application for life insurance knows that a fair number of questions relate to one’s lifestyle. The insurance company asks about one’s occupation, drinking and smoking habits, hazardous pastimes and other everyday tasks. One is also required to reply to questions about one’s height, weight, current state of health and medical history, for example.
Some pastimes and activities are considered to be riskier than others. For instance, flying a private plane, scuba diving, mountaineering, and car racing are riskier than most field and track sports. Practising a hazardous sport means the risk the insurance company assumes is higher and the annual insurance premiums quoted by the company will reflect the higher risk. When one applies for life insurance, the case is classified along with others with similar risk characteristics. Not every person in the group will have exactly the same life span, but the group will have a fairly predictable life expectancy. This group, known as a rating class, is the basis on which the insurance company determines its premiums.
You do not insure your life. You insure yourself against the risk of losing it. The premium you pay reflects the risk you are regularly exposed to
If one has a chronic condition such as coronary artery disease, or a history of stroke, cancer or diabetes, one may still be eligible for life insurance. Higher-risk individuals normally pay more in premiums for the same level of protection than a lower-risk person but life insurance can still be affordable even when one suffers from relatively serious conditions. Customers often find it difficult to understand why an insurance company is sometimes concerned about a medical condition when a personal or family doctor is not. If one has a medical problem that requires no immediate medical attention, a personal or family doctor may not be concerned and may convey that sentiment. When that medical condition becomes more severe or when complications develop, the doctor can respond by ordering further evaluation or by starting treatment. However, when evaluating that same medical condition, insurance companies only have one opportunity to make their risk assessment at the beginning of the life insurance contract and for whole duration of the policy.
Proper assessment of one’s current state of health and medical history helps the insurance company to determine where the applicant fits in the general health scale of the group rating class. Depending on the age of the applicant, the amount of insurance cover requested and the state of health of the applicant the insurance company may require the applicant to undergo a medical examination or particular medical tests. The cost of these examinations and tests are borne by the insurance company.
Besides questions about health, in cases when large amounts of life insurance cover are requested, the insurance company may also ask questions about the financial condition of the life to be insured. In this regard the insurance company may ask for a statement of income and audited accounts, for example.
Information helps the insurance company determine whether the applicant is eligible for life insurance. Most people usually are. By analysing the information and assessing the application, the insurance company is able to offer a fair price that is commensurate with the risk assumed by the company.
The process ensures that the risk class is determined correctly. This in turn enables insurance companies to keep premiums low, which makes life insurance more affordable for most applicants.
Elena Steflea is chief medical officer at MSV Life plc.