BackDe-jargoned: Underwriting
Underwriting helps the insurer gauge the risk and price their products accordingly
Premium
Underwriting is a critical aspect of insurance. It’s a process that financial companies use to assess your eligibility to receive their products. In insurance, the concept of underwriting helps the insurer gauge the risk (of providing you cover) and price their products accordingly. This is why a smoker pays a higher premium in a life insurance policy than a non-smoker, for the same level of sum assured or death benefit. Here’s how all the information you provide impacts the insurance cover that you get.
About you
The first thing that an insurance company does is to ask you to fill out a proposal form, which helps them know you better. A proposal form is a legal document that seeks relevant information from you. If you lie or hide information, the insurance company is well within its rights to refuse a claim. The first set of details that the insurer will seek from you include things such as name, age, income, occupation, etc. These details have different roles to play. For instance, your age will determine the premium you need to pay—an older person pays more, while a younger person pays less. Your income tells the insurer the level of insurance you may need and what you can afford. Life insurance is a kind of policy that you buy for your dependants to protect them financially. The insurance amount should be in sync with your income. So, a person earning 3 lakh a year would find it difficult to buy insurance cover of, say, 1 crore.
About your health
Medical underwriting is also a crucial part for an insurance company to assess the risk. The company would want complete information about your health status to give you a health cover. For instance, a terminally ill individual may not be able get a health insurance policy.
There are two ways in which the insurer would seek information. The first is a simple declaration from you about your health. Questions in the form revolve around your personal health and the medical history of your family. You will need to mention any pre-existing ailments or instances of hospitalization in the recent past.
Typically, the insurer looks for ailments that may increase their risk. The second level of medical underwriting is done when the insurer asks you to go for medical check-ups. Those in higher age groups or buying insurance cover of a large amount are specifically asked to go for medical examination.
Mint Money likes policies that are fully underwritten, i.e., the insurer has asked you to get a complete health check-up done before it insures you. This will help obviate unpleasant surprises at the time of a claim. Once the process of underwriting is over, the insurance company will agree to insure you for a certain amount at a certain premium.
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