The young, educated, healthy well-off and non-smokers get better term covers than older, less educated, low-earning and smokers
Buy term. You must have read this a million times in these pages. If you are looking for a life insurance policy to protect your family against your untimely death, then the only product type to buy is a term insurance plan. But it may not be that easy to buy it. There are three possibilities that may play out when you try to: you may have to undergo additional medical tests or submit more documents, you may have to pay a higher premium, or in the worst case be denied insurance altogether.
Several things determine your experience of buying a term policy. The important ones can be broadly categorised under health, income, educational qualifications and occupation. We tell you how you are assessed on these parameters.
Your health status
Insurance is the business of covering risks and for that the insurers charge a premium. To do this, it’s important for the insurer to determine if the risk is insurable and the price appropriate. This process is called underwriting. Two kinds of underwritings are applicable in this case: medical and financial.
Under medical underwriting your age and health status are reviewed. Insurers typically consider you for insurance if you are under 65 years of age. So if you are young and healthy, buying a term plan is a sitter otherwise insurers are cautious. “Obesity, diabetes and hypertension are the three important red flags...and we may ask for additional medical tests. We may decide to load the premium, but if the health condition is so severe that even loading doesn’t price the risk appropriately, the customer is denied a cover," said V. Viswanand, senior director and chief operations officer, Max Life Insurance Co. Ltd.
Smoking can be a factor for raising the cost. “If you SMOKE say, 10 cigarettes a day, the insurer will not only load the premium but may deny you insurance especially if you have other health issues as well," said Mahavir Chopra, director, health, life and strategic initiatives, Coverfox.com, an online insurance broker. Premiums for smokers can be higher by about 40-50%.
Family history can also play a role. “It is important to know if the customer is genetically predisposed to an ailment. Physical or congenital impairment that affects the ability to earn, may also mean the customer is denied the cover," said Sujoy Manna, vice president-product, HDFC Standard Life Insurance Co. Ltd.
Even early deaths in the immediate family due to chronic lifestyle diseases or critical illnesses can impact underwriting.
While health has a more direct impact on your insurability; your income, educational qualifications and occupation also have a bearing. “Income ascertains eligibility of sum assured. For term insurance, as a thumb rule, more than 20 times of income as sum assured is not permitted," said Yashish Dahiya, chief executive officer and co-founder, Policybazaar.com.
However, for higher-income individuals, loading norms can be relaxed. “Higher income segment typically have better access to health care and depending on the severity of current life style disease, insurers may or may not charge higher premium," added Viswanand.
Eligibility for insurance doesn’t mandate earning capacity, but the economic value of the insured.
“A housewife, for instance, may not draw a regular income but she manages the household. So if she is not around, an alternate investment will be required in the form of an external help such as a day care for children. We offer life insurance to housewives under the joint life term cover," said Vijaya Nene, director operations, PNB MetLife India Insurance Co. Ltd.
Other than income, educational qualification also plays a role. According to Chopra, insurers discourage applications from non-graduates unless they are in a high-income bracket of 5-6 lakhs per annum. Insurers say that education also determines the amount of sum assured a customer can get. “Educational qualification determines the earning capability of the customer. While there are group policies specifically designed for customers with low- or no-educational background, an individual policy will underwrite customers on the basis of their educational qualification as well," said Manna.
Lastly, your job profile is considered too. If you are in a high-risk profession, the insurer may load or reject your insurance. “For instance, non-commercial airline pilots and non-administrative defence personnel will typically end up paying higher premiums. But insurers may refuse to cover a professional deep-sea diver," added Viswanand.
Even self-employed customers may face greater scrutiny. “There is always a risk that these individuals don’t disclose correct income. So the insurer may also ask for income tax returns in addition to the standard documents," said Dahiya.
Other than these , factors like your location are also considered to assess your risk. It helps to understand what the insurers look at, so that your expectations are more realistic and you can improvise on parameters.