What is the subscription of life insurance and how is it done? Here’s what buyers need to know

By Anup Seth

The life insurance business is one of protection against risk. When you buy a life insurance policy, you’re buying one with the idea that if an incident results in your unfortunate death, your family will be financially in charge. In other words, you buy a policy because, in your opinion, the risk of your family being left without a financial support system after your death outweighs the cost of paying a premium.

Similarly, an insurance company also protects itself against the risks that arise from carrying out its day-to-day operations of issuing policies for its clients. In the same way that a life insurer fulfills the role of financial risk manager for you, reinsurers protect the financial risks of insurance companies. These reinsurers establish guidelines that life insurers must follow before issuing a policy to the customer. Essentially, the life insurer assesses the risk associated with each individual looking to purchase a policy and determines a fair premium rate to match that risk.

In short, underwriting is the process by which life insurance companies determine a customer’s eligibility for a particular policy. It is one of the most crucial aspects of issuing a life insurance policy, as careful and accurate risk assessment enables life insurance companies to offer best-in-class service to their clients, innovate in more new ones, issue policies to as many people as possible and settle claims efficiently.

Subscription types

A life insurer assesses your policy eligibility based on various factors such as age, income, occupation, lifestyle, underlying medical conditions, weight, body mass index, etc. Based on these parameters, companies typically classify underwriting into two broad categories:

The company considers your income, job, stage of life, and your ability to pay the premium for holding the policy to determine if the amount of life coverage you want to purchase meets the needs of you and your dependents.

Commonly known as mortality screening within the industry, this aspect of underwriting takes into account your age, lifestyle, habits such as smoking, drinking, and your propensity for underlying illnesses based on your family history.

financial subscription

Financial underwriting is a process insurers use to calculate the amount of life coverage that’s right for your situation. After you express your interest in purchasing a certain amount of life coverage, the insurance company will conduct a thorough analysis of your financial situation. At this stage, you will need to provide various documents such as salary slips, bank statements, phone bill, electricity bill, passport, aadhar card, tax returns, etc.

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If you have ongoing insurance policies previously purchased in your name, you may also need to provide details about those. While some clients may find this process intrusive, it allows the insurer to determine your exact risk appetite. You may have inadvertently overestimated your life insurance needs, leading you to pay an unnecessarily high premium. Conversely, if you’ve been too conservative in estimating your life insurance needs, the company may offer you a policy with an even better value. Financial underwriting will allow the insurer to help you avoid any of these pitfalls and provide you with better service.

medical underwriting: Never hide anything from your doctor… and your life insurance provider

The importance of disclosing your medical history when purchasing a policy cannot be underestimated. This includes medications you take regularly, any hospitalizations you’ve had in the past, upcoming minor or major surgeries, and pre-existing conditions.

When you apply for a life insurance policy, a company representative will make an appointment to perform medical tests and/or take samples. These tests are very important as they serve as a snapshot of your current health. The test results form the basis of all your dealings with the company, from the price of the premium to the settlement of claims.

All of the above factors are taken into account when issuing the policy. If your medical tests reveal any discrepancies between your results and the information you disclosed when applying for the policy, it could lead to unnecessary delays in issuance and could also result in your policy application being denied. Also, when you agree to the terms and conditions of a policy, it is assumed that you have been transparent about your medical history. This is referred to as the ‘maximum good faith’ principle. Intentional non-disclosure of critical health information during purchase may affect the claims settlement process.

Some buyers think that revealing pre-existing conditions will lead to not being covered or an increase in the premium to be paid. However, most insurance providers cover such ailments after a short waiting period. So while hiding things from your insurance provider may give you a sense of comfort that you’ve avoided a slight increase in premium, it can be much more costly if such non-disclosures are discovered at a later stage. Consequently, you will end up exposed to the financial risk that you had set out to cover for your loved ones.

It is advisable to be as complete as possible when declaring your health status to your insurance provider. This will help the underwriting system work in your favor by determining the fairest premium price, faster policy issuance, minimizing the risk of policy rejections and/or claims, and maximizing your long-term value proposition. policy.

(The author is the distribution director of Edelweiss Tokio Life Insurance. The opinions expressed above are those of the author and not necessarily those of financialexpress.com)

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