Underwriting? What's that?

When financial advisers talk about insurance they often talk about underwriting. But what is underwriting and why does it matter?

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.

 

1 https://www.moneysmart.gov.au/insurance/life-insurance
2 https://www.finder.com.au/life-insurance/premiums#Does-my-gender-affect-my-premiums
3 http://www.aihw.gov.au/body-weight/
4 https://www.finder.com.au/regular-smokers-and-life-insurance

How much insurance do
you need?

There are many factors that can affect the level of cover you need. Our calculator can help you work out how much cover you may need.

Find out now

Explore your goals

Try our online tool to explore, prioritise and create your own goals timeline.

Start exploring

Protecting your future with insurance

Understand how insurance can play a big part in protecting your financial future.

Learn more

News&insights

Want to keep up to date with the latest news?

Subscribe now

Recommended articles

News and insights tile

Important information

Show more

© AMP Life Limited. It’s important to consider your particular circumstances and read the relevant product disclosure statement before deciding what’s right for you. This information hasn’t taken your circumstances into account. This information is provided by AMP Life Limited. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you. All information on this website is subject to change without notice. Although the information in this article is from sources considered reliable, AMP does not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decisions. Except where liability under any statute cannot be excluded, AMP does not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.