More than 50% of our Stangen Life policyholders are female, so we know for a fact that more and more South African women are buying life insurance.
If you haven’t decided to take out life cover yet, it’s probably because you have a few unanswered questions floating around in your head. One of them might well be “I’m not super-healthy right now, so how will this influence my life cover application?”
It’s a good question and one that comes up very often, so we thought it would be worth discussing it in this week’s article.
When you take out a life insurance policy, you are entering into a contract (policy) with a life insurer. On the one hand, the life insurer promises to pay out a predetermined Rand amount to your nominated beneficiary when you pass on, and in exchange for that, you are going to pay a premium every month. Over and above your monthly contributions, part and parcel of holding up your end of the bargain is that you are 100% truthful at the application stage when it comes to your health and any pre-existing conditions you may have, regardless of how far back they date.
Why is all this medical information so important? And why do you need to disclose everything?
Remember that the life insurance company doesn’t know anything about you, but you are asking them to write out a big cheque to someone if you pass away. If the shoe was on the other foot, and you were the one tasked with writing out the big cheque, wouldn’t you want to find out how healthy the applicant is at the outset?
Life insurance companies need to gauge your health so they can price their rates accordingly (know what they should be charging you for your life cover). When you call a life insurance company for a quote, they are going to ask you a few simple questions so they can give you a base level quote.
- Your age
- Your gender
- Your smoking status
- Your highest qualification
- Your gross monthly income
But this is only a preliminary quote because the insurer will need to run through a series of more comprehensive medical questions before they can grant you the standard rates.
The list of underwriting questions might differ from one life insurer to the next, but ultimately this is what they are looking for:
- Have you been ill over the last 5 years and if YES what were you suffering from?
- Have you ever been diagnosed with cancer, suffered from a heart attack or had a stroke?
- Do you have a history of family illness?
- What is your height and weight (Body Mass Index)
- Do you consume alcohol and/or smoke and if YES how many units of alcohol do you drink per week and how many cigarettes do you smoke per day?
- Do you participate in any hazardous activities like skydiving?
- What is your occupation and is it hazardous?
- Are you HIV positive?
- Are you planning any future hospital stays?
- Have you had any other major health incidents over the past decade?
Based on the answers to those questions, the underwriter (in most cases a sophisticated actuarial software programme) will give you one of three potential outcomes:
- You qualify for life cover at standard rates
- You qualify for life cover, but your premium has been loaded
- You don’t qualify for life cover at all (declined)
Let’s take a closer look at what each of these outcomes mean.
If you qualify for life cover at standard rates (the rates offered to you when you answer those 5 quick questions) then it means the life insurer is happy with you as a risk. The amount quoted right at the start of your conversation with the sales agent will be offered to you.
If your premium gets “loaded”, it means you will still have the life cover, but the insurance company is asking you to pay more than your original quote and that’s because they picked up something in your medical questions. The answer/s presented a flag for them and because of taking on the extra risk, they want to make sure they price your cover correctly.
A flat-out decline means the life insurance company doesn’t want to take on your risk at all and it must be something serious that has come up in your questions. This seldom happens with a straight life insurance application but can happen if you bolt on other benefits like disability and critical illness.
Most of us are much healthier when we are young and taking out life insurance is also far cheaper when you’re in your 20s and 30s. It’s never going to be cheaper than it is today to secure your family’s future. Every day that you put off taking out life cover is another day that poses a risk of you getting ill and not getting standard rates, or worse yet, not being able to qualify at all.
Until next time
The Wise About Life Team