Photo: iStock
Photo: iStock

Insurers look at past medical history, not weight record, when deciding premiums

Life insurance policies are long term in nature, and the conditions of these policies cannot be changed mid-term

I had bought my policy about 3 years ago. But my medical conditions have changed—I was obese, but have managed to bring down my weight to within reasonable limits. If I bring this to the notice of my insurer, will they re-examine my case and change the premium? If they don’t reduce my premium, can I go to another insurer? If I go to another insurer, will only the current conditions be considered or the past facts will also matter? —Akshat Mehta

Life insurance policies are long term in nature. The conditions of these policies cannot be changed mid-term. So, your improving health will have no bearing on your existing policy. It is likely that at the time of underwriting of your first policy, you were charged a loading on standard premium. If you approach another insurer now, they will not charge you that additional loading. A new insurer would do fresh underwriting, and look at your new medical reports. They will not look at your past weight record. Only your past medical history, if any, will be considered.

If the premium charged to you 3 years ago was the standard premium, then there may not be substantial benefits of going to a new insurer. In fact, with age, the premium for a term life policy increases.

Recently I took out quotes from an insurer who offered a lower premium for 10 years and a higher premium for a 5-year term. Is that logical? Shouldn’t the premium increase for a longer horizon?—Bidisha Ganguly

Yes, you are right. I’m assuming this is a term insurance that you have described. Premiums in a life insurance policy are fixed for the term of the policy. So, when the duration of the cover increases, generally premiums will go up. A longer term would command a higher premium. However, there may a few exceptions to this depending on the insurer’s pricing assumptions. There are several costs associated with a policy, including sourcing, underwriting and administrative costs. These are fixed costs, generally incurred upfront, and do not change much with policy term. Insurers tend to amortize these costs over the term. Now, for a smaller duration policy, these costs may inflate its premium to be more than that of a slightly longer term policy.

From a policyholder’s perspective, this has no implication. All other things remaining the same, you should opt for a lower cost policy. You can buy a 10-year term insurance and then discontinue the insurance after 5 years if your coverage requirement is met.

Why should I buy a group term life insurance for my employees if they already have an individual term life insurance policy?—Rajiv

If all your employees have an individual term life insurance, then there is no substantial benefit to buying a separate group term life insurance policy. However, in practice a substantial number of employees do not have a personal coverage. Several of them may have bought an endowment life insurance policy with low sums assured. The aggregate death benefit may not be sufficient to even cover one year’s salary in such policies. In such situations, a group term policy ensures that everyone has a minimum threshold coverage. When you buy in a group, you are able to get substantially lower rates than individual term life insurance policies. Also, your employees will not need to undergo medical tests for this insurance.

To read full queries, go to www.livemint.com/askmintmoney

Abhishek Bondia is principal officer and managing director, SecureNow.in.

Queries and views at mintmoney@livemint.com

Close