Life Insurance for People Considered to be High Risk
People looking to apply for life insurance may have heard the term “high-risk” being used when describing an underwriter’s assessment of an applicant. A high-risk individual can loosely be described as someone that has an increased risk of mortality or disablement. Similarly, they are individuals that are more likely to claim on their policy. This increase in risk can be a result of their health, lifestyle and occupation among other factors that will be considered by an insurer.
Insurers that consider applicants high-risk will usually take one of the following actions:
- Reject the policy application. This is quite rare though some insurers will consider the applicant too high-risk for their company to cover and will pass on insuring the individual. They are avoiding the risk altogether as the chances of a claim occurring is too high.
- Apply a premium loading. Insurer will account for the additional risk by applying an additional premium loading.
- Make exclusions on the policy. The insurer may decide to exclude some risks entirely i.e. will not cover claims for back injuries if the applicant has a medical history of back problems.
The information provided by applicants will allow the insurer to determine an appropriate premium for that applicant to pay to receive cover. It is important to note here that insurers will have different considerations for what makes an individual high-risk with some insurers specialising in providing cover to people that may present an additional level of risk due to their occupation or lifestyle.
How do life insurance companies determine whether I am high risk?
Each insurance company has its own team of insurance underwriters that will assess applications for life insurance policies. It is the role of these underwriters to assess whether or not they will accept the application and on what terms. These underwriters work to protect the insurance company from unexpected rates of mortality or disablement.
The underwriter may not be able to make an informed decision on whether or not to avoid the risk or an appropriate premium loading to apply based purely on what has been disclosed on the policy application. In these cases the insurer may be required to obtain further information about the person's situation by asking the insured more questions or getting them to submit further medical evidence. Underwriters only have one opportunity to make the terms of contract so must ensure all information has been obtained.
Types of documents that may be required from applicants include:
- Statements made on their insurance application.
- Questionnaires covering specific risks that have been stated in their applications. This may include medical questionnaires, questionnaires about their occupation, questionnaires about hobbies or pastimes.
- Medical examination report from a certified medical attendant.
- Any additional medical reports.
Based on all of the details provided, an insurer will determine the insured’s expected mortality and decide on the conditions for cover.
Factors considered by life insurance companies when providing life insurance quotes for high-risk individuals
While criteria for assessment can vary among providers, insurers will generally consider the following factors when determining an appropriate premium rate.
- Occupation. Individuals that earn a living through particularly dangerous occupations that have higher rates of mortality or higher rates of disablement can expect to pay a premium loading. Insurers may review past claim statistics to help them determine what professions have a higher level of risk. As an example, manual labourers may be required to pay a higher premium to that of an office worker. Importantly, it will be determined by the actual roles of the individual in that profession. Someone’s job title may be “Miner” but their actual position may not require them to work on site with their duties restricted to an office environment. Someone in this position may submit further underwriting to avoid an extra premium loading.
- Health. Health is a critical factor used by insurers when determining an appropriate premium. Applicants are required to state whether they have any pre-existing medical conditions such as high-blood pressure, heart problems, arthritis and any other condition that may influence the insurer's decision. Insurers will need additional medical underwriting to help them assess the risk of that particular condition through the existence of any other related medical conditions, treatment the applicant is receiving and how controlled the conditions is. Smoking, drinking habits and the persons weight will also be considered by underwriters.
- Lifestyle and hobbies. Applicants that engage regularly in high-risk activities such as abseiling, motocross racing or boxing can expect to pay a premium loading. Alternatively, the insurer may decide to exclude that hobby from the policy altogether.
Disclosure of details by high-risk applicants
People may be wondering why they would bother disclosing details about their health, occupation or pastimes if it is going to lead to an increase in premiums. The simple answer is that in the event of a claim being made, the insurer will take necessary steps to ensure that information was not withheld by the policy owner at time of application that played a part in the event occurring. If this is found to be the case, the insurer is completely within their rights to reject the claim or reduce the benefit payment to reflect what would have been paid had all of the correct information been submitted by the applicant.
What can I do if I am high-risk and looking for a life insurance policy?
Many applicants make the mistake of thinking it will be impossible for them to take out cover because they tick a few boxes that place them in a higher risk category to others. The Australian life insurance industry has evolved to become a highly competitive landscape with literally hundreds of different policy options available from dozens of different insurance providers, each with different criteria for how they assess clients. Most insurers will prefer to adjust policy terms for clients as oppose to reject the application altogether. Here are some handy tips for people that may be considered high-risk.
- Speak with an insurance consultant. Life insurance advisers have the benefit of knowing what insurers are more likely to provide affordable cover to certain clients. An insurance consultant can help applicants review different options available and the pricing on each.
- Compare different options. Many life insurance applicants are quick to get cover from the provider that looks after the rest of their finances or the first one that is recommended by their friend or family. Spending some time to review quotes from a range of providers can save you thousands in the long run.
- Lifestyle changes. Nobody wants to tell you how you should live your life but making certain lifestyle adjustments can be extremely rewarding when looking for cover. For example, people that smoke can expect to pay at least double in premium payments to non-smokers. Similarly, candidates that are an unhealthy weight may be able to slash their premium payments to save on their premiums.
Other types of insurance that high-risk people may consider
There are other types of insurance available in Australia with very little or no underwriting requirements for people that may be deemed uninsurable for life cover. These types of policies can be a great option for people that have struggled to receive cover in the past but still want to get some protection in place.
- Funeral cover. Funeral insurance is similar to life insurance in that it provides a lump sum benefit upon the death of the policy-owner to cover final expenses. This type of cover usually has guaranteed acceptance.
- Accidental death cover. Provides cover for deaths caused by accidents only. Can be a great option for applicants with pre-existing medical conditions as these will not be taken into account by the provider.
Still life insurance policies available for high-risk applicants
The worst step anyone that may be considered high-risk to take is avoiding taking out life cover at all. Compare different product options and speaking with an adviser will help you get a better idea of the options available and what you can expect to pay. An insurance consultant can provide further information around what is required at application and what steps can be taken to get affordable cover that still offers an appropriate level of protection.