Before Taking Life Insurance, Understand The Process Of Underwriting, It Will Be Easy To Claim
October 19, 2022: The business of life insurance is the business of protection against risk. While buying life insurance policy, keep in mind that in case of your unfortunate death in an accident, the policy will provide financial protection to your family.
In other words, there is a thing in your mind that after your death, your family will not have any kind of financial support. For this, you pay a premium.
Similarly, the life insurance companies in India also insulates itself from the risks associated with its day-to-day operations of issuing policies to the customers.
Just as a life insurance company acts as a financial risk manager for you, a reinsurance company protects the financial risk of insurance companies.
These reinsurance companies set some guidelines for life insurance companies. Life insurance companies have to follow these guidelines while issuing policies to customers.
Under this, life insurance companies assess the risk associated with each person buying an insurance policy and fix a reasonable premium rate against that risk.
In short, underwriting is the process by which life insurance companies decide the eligibility of a customer for a policy.
It is one of the most important aspects of life insurance policy issuance as careful and accurate risk assessment enables life insurers to provide the best service to their customers, find innovative solutions, issue policies to a maximum number of people and more effectively. It helps in the settlement of claims.
The life insurance company assesses the eligibility of your policy by taking into account factors such as your age, income, occupation, lifestyle, past medical conditions, reasons, body mass index, etc. Keeping these parameters in mind, companies classify underwriting into two major categories:
Financial underwriting is the process used by the insurance company to calculate the amount of life cover that will be sufficient for you.
When you show interest in buying a life cover of a certain amount, the insurance company does a complete analysis of your financial situation.
The company considers your income, job, stage of life, and your ability to pay premiums for the term of the policy to determine whether the life cover you wish to buy suits the needs of you and your dependents Yes or No.
In the industry, this is commonly referred to as the ‘mortality assessment’. This aspect of underwriting is related to your lifestyle habits like your age, lifestyle, smoking, and drinking.
Along with this, its purpose is to assess on the basis of your family history whether you are at risk of suffering from any kind of disease.
In this step, you have to provide documents like salary slip, bank statement, telephone bill, electricity bill, passport, Aadhar card, and income tax return.
If you already have an insurance policy in your name, then you have to give details of that as well. Though some customers find the entire process quite cumbersome, it helps your insurers to assess your overall risk profile.
Many times it happens that you end up overestimating the life insurance requirement and for this, you have to pay unnecessarily high premiums.
On the contrary, if you plan to take a policy less than your requirement, then the company offers a policy of better value to you. Financial underwriting helps you avoid any of these pitfalls and gives you better service.
Medical Underwriting: Nothing should be hidden from your doctor… and life insurance provider:
The importance of providing all the information regarding medical history while buying a policy cannot be underestimated in any way.
This includes information about the medicines you take regularly, prior hospitalizations, future minor or major surgeries, and pre-existing medical conditions.
When you apply for a life insurance policy, a representative of the company calls you for medical tests and/or to collect samples.
These tests are very important because the report of these tests confirms your health at that time. The test result decides everything from the determination of your premium to claim settlement.
All these aspects are kept in mind while issuing a policy. If there is any discrepancy between the report of your medical tests and the information provided by you while applying for the policy, it leads to unnecessary delay in the issue of the policy, and even your application gets rejected.
Along with this, when you agree to the terms and conditions, it is assumed that you were transparent about your medical history.
It is seen as ‘most trusting’. Intentional non-disclosure of vital health information while purchasing a policy affects your claim settlement process.
Some buyers who buy an insurance policy feel that giving information about any pre-existing disease will either not cover the policy or pay more premium.
Will have to do, however, most insurance providers start covering these diseases after a short waiting period. In such a situation, if hiding information from the insurance provider gives you some relief that your premium does not increase, but later when it comes to knowing that you had hidden something intentionally, then this thing will give you more.
Gets expensive. This would result in a financial risk situation for your family members for whom you had taken the insurance cover.
Insurance providers are advised to give as much detailed information as possible while giving health-related information.
This way the underwriting system will work completely in your favor as it will determine the most reasonable premium, the policy will be issued to you sooner, and also the chances of the policy or claim being rejected will be reduced. On the other hand, it will help in increasing the value of the policy in the long run.
Disclaimer: Insurance is a subject matter of solicitation. The information provided in this website cannot substitute for the advice of a licensed professional.
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