When you apply for insurance, insurers look at several factors to determine if they can provide you with cover and at what price. This process is known as underwriting.
Much in the same way that car insurers ask about the make, model, age of your vehicle and your driving history, in the case of life insurance you usually have to submit an application that asks for information about you, including your occupation, health and lifestyle.
This might be followed up by a phone call for more information, and in some cases, you may be asked to provide extra information or undertake a medical assessment.
Why do insurers use underwriting?
Underwriting is a term used by life insurers to describe the process of assessing risk when a person applies for an insurance policy. By looking at risk factors for an individual (such as health, occupation and hobbies), an insurance company can ensure that appropriate premiums are determined, that people with similar risks pay similar premium rates, and that those people with a greater likelihood of claiming pay more for their insurance (and vice versa for people with lower risk).
Depending on your risk factors, there may be an impact on the cost of your cover or what your policy covers you for.
What are some of the factors insurers consider?
- Age: An insurer will look at your age when assessing your risk, as younger people are less likely to make a claim.1
- Gender: As a group, women have a higher life expectancy, are less prone to health conditions such as heart disease and stroke, are more likely to seek early medical advice and are believed less likely to engage in high-risk activities than men.2
- Health: If you’re in good health you pose a lower risk, so may find it easier to get cover and it may be less expensive. Your weight is one health-related factor taken into account during underwriting. Insurers use a measure known as Body Mass Index (BMI), along with other weight-related information such as your waist measurement, to assess whether you are overweight. People who are a healthy weight have lower rates of death and illness than people who are overweight and are less susceptible to conditions such as cardiovascular disease, high blood pressure and type 2 diabetes.3
- Occupation: Some industries are associated with particular health risks, such as injury or developing certain cancers. For example, working with asbestos poses a higher health risk than working in an office.
- Hobbies: There are a number of risks associated with certain hobbies such as rock fishing, motor racing or aviation. Other hobbies, such as non-competitive cycling or running, are not usually considered to be a high risk for insurance.
How we can help
Insurance can be complex, but it’s a vital element in protecting your financial future.
To learn more speak to your financial adviser, or if you need help finding one call us on 131 267 or use our find an adviser tool.
If you’ve ever wondered about the value of insurance, find out about AMP’s approach to claims and what we paid in 2017.