Through the Process of Underwriting, a series of tasks designed to:
- Gather adequate information on proposed insured
- Evaluate the information
- Make underwriting decision i.e.
- Classify into Standard or Substandard Life
- Issue insurance as applied for if standard
- Issue insurance with certain modifications in coverage or premium rate if substandard or
- Decline to issue insurance
In other words; it is Risk Selection
How to treat Substandard Lives
Charge ordinary rates for Special type of policies:
- Applied for increasing extra risk which becomes more critical in later years.
- Charge ordinary rates provided the policy matures before a certain age. E.g. Endowment Policy maturing before the age of 65 years
Offer a different type of Policy:
A Whole life proposal might be declined but an endowment policy maturing at ages fifty or fifty five may be offered
- May be accepted at ordinary rate but death from the extra risk is excluded. E.g. death resulting from a pastime
- Used for constant extra risks – occupational and sporting extra risks
- Disadvantage: Incomplete cover and not available when it is needed most.
An extra premium expressed in terms of an amount per 1,000 Sum Assured. E.g. 2.00%0 (2 per mille) i.e. MuR2 per MuR 1,000 sum assured.
- Assumes that the life is “X” years older than the real age
- The premium for the rated-up age is charged. E.g. a proposed aged 40 with chronic bronchitis rated “plus 5” can be charged the normal premium for a 45 year old man
Debt or Lien
- This is deduction from the sum assured by certain percentage per annum
- E.g. if death occurs in the first year of assurance the sum assured is reduced by a debt of 90%. The debt decreases by say 10% per annum for ten years.
- If death occurs after ten years, the sum assured will be paid in full
- Used where the initial risk is virtually uninsurable, but where after the danger period is survived the prospect will improve substantially so that acceptance at ordinary rates might be possible.
- E.g. if the proposer is to undergo surgery in the near future.
- It can also be used for a pregnant woman proposer who has had history of gynaecological issues
Decline: The proposal may be declined outright where
- The extra risk is very heavy with no prospect of improvement later
- A medical examination revealed that a proposer is HIV positive. This may not be the case for group schemes and where the country’s law protects HIV victims.