Philip Holland Financial Independence financialindependence

Why do insurance companies ask so many questions when I take out a life insurance policy?

This is a question often asked when clients are going through the 'underwriting process”. This is where an insurance company ‘assesses' the person for the potential risks they may pose. This may include current or previous medical issues, financials, as well as family history. From here, the insurance company will offer the client terms in which they will accept the business. These terms may include the following:

• ‘Loading' – this is where the premium paid maybe increased to reflect the risk. For example, a person may be overweight or a smoker and thus their premiums will be higher (loaded) than another person who does not smoke or is not overweight.
• ‘Exclusions' – an insurance company may exclude a medical condition or coverage of a specific event or activity.
• ‘Deferral' – whilst insurance companies cannot discriminate people, they may choose to defer an underwriting decision and not offer terms at that point of time.

So what should a good insurance adviser do for you during the underwriting process?

It is really important the adviser helps you fully complete the application forms. Always disclose all information; this ensures your policy will stand up at claim time – another article later on this topic. A good adviser always gives you a copy of your application form for your records.

If you do receive an exclusion or a loading, a good adviser will go ‘into bat' for you and endeavour to get these reduced or removed. Often this may involve going to a different insurance company to get a second opinion. A recent example we had was one company giving a client a full cancer exclusion and a loading. After negotiation attempts failed we tried a different company and managed to get a specific exclusion for cancer – big difference to a full cancer exclusion – and the loading removed. This client was ultimately far better off as a result.

So whilst the underwriting area can be a mine field, make sure you use a professional insurance adviser to ensure you get the best possible outcome.

Philip Holland is the managing director for the Financial Independence group, Tauranga's leading specialist insurance and mortgage advisers. For further information please contact an adviser at Financial Independence phone 07 578 4414 or email info@yourbroker.co.nz. A Disclosure Statement is available free of charge on request. The opinions stated in this article are those of the writer and should not be taken as specific advice.