What "risks" are considered by life insurance companies that may impact your premium?
Insurers will consider many different factors when determining your premiums. "High risk" applicants are those with a higher-than-average likelihood of death or disability due to aspects of their lifestyle or health. Factors that could make you considered “high-risk” include:
- Pre-existing medical conditions like heart disease
- Dangerous sports, occupations and activities, like commercial fishing or cave diving
- Lifestyle habits such as whether or not you are a smoker
This information will be collected by the insurance company during the application process, and they will set your premiums accordingly.
4 factors that influence the risk you present to your insurance company
1. Overall health and pre-existing medical conditions
Your health and lifestyle are the main factors for insurers to assess. They will provide a medical questionnaire when you apply to disclose any existing or past conditions that you have suffered from any the current treatment you are undergoing.
Failing to disclose pertinent information lets the insurer cancel your policy without refund or deny claims you might make.
If you have pre-existing medical conditions and you take out life insurance policy, the insurer will address the condition in one of three ways:
- They might insure you, but with an exclusion for the pre-existing condition.
- They might choose to insure you, as well as cover the condition at the cost of raised premiums.
- They may decline to insure you.
Some policies may require you to undergo a complete medical or physical check-up to be eligible. Not all policies will require this, but if you have pre-existing conditions then the insurer might insist. This is to make sure no condition has been overlooked and to clearly verify your health and wellbeing at the time of application.
2. High risk activities
Are you into skydiving, bungee jumping, motorcycles, extreme sports or any other dangerous hobby? Your life insurance company might just see an expensive accident waiting to happen. High risk hobbies are a distinct life insurance risk factor, and many policies will outright exclude a specific list of pastimes, such as cave diving, skydiving, auto racing and others. Others might cover you for these anyway, but only at extra cost.
It might cost more, but many insurers will still cover these activities, and there are also companies which specialises in providing cover for thrill-seekers.
Occupations are classed in different categories of risk based on the nature of the work and perceived level of risk. Occupations including Agriculture, Fishing, Mining, Construction with increased risk of death and/or injury will carry higher premiums.
It’s important to note that the insurance company will also consider the actual duties carried out in your specific role. For example, if you work in the mining industry but your role is mainly restricted to administration, you can contact your provider to have your premiums reviewed based on the reduced level of risk.
4. Lifestyle factors
Smoking, heavy drinking or recreational drug use can all be considered lifestyle factors. The general rule is that insurers will charge higher premiums for any lifestyle factors that are linked to increased medical costs, or a raised chance of disability or death. To put it plainly, smokers are likely to pay as much as double in premiums to non smokers.
On the other hand, someone in great shape with a demonstrably healthy lifestyle may be eligible for discounts, reduced premiums and other bonuses from insurers.
- A non-smoker is someone who hasn’t smoked for more than 12 months
- You will usually be required to list all medications, prescription or otherwise, that you are regularly taking
- Insurers may ask about alcohol consumption and other drug use
- Some lifestyle factors may be determined through medical testing, blood tests, BMI calculators and other methods
Not every life insurance company assesses applicants in the same way. While some companies may refuse to provide cover to high risk applicants, there will be others that are willing to provide cover despite risky occupations, pastimes, medical conditions or lifestyles. Even with these, however, you should still expect additional premium loading or certain exclusions in your policy.
Can an insurance broker help?
Life insurance advisers can use their knowledge of the industry to help potentially risky applicants find providers that are willing to cover them at a reasonable rate. Based on the risk that the applicant carries, the adviser can find insurers more willing to provide cover or tailor the policy around the risk.
If you’re a risky candidate that doesn’t mean you can’t get insured, nor does it necessarily mean you will always have to pay much higher premiums. Follow these steps to balance costs and benefits, and find a policy that works for you.
1. Know your risk profile
Your risk profile relates to how likely you are to make a life insurance claim before the policy expires. Dangerous occupations and pastimes naturally raise the chances of something unfortunate happening. Consider listing all the lifestyle factors, occupational hazards and dangerous pastimes you have which might affect your insurance needs, and then specifically considering how these are handled by different policies.
These are the factors which have a big impact on your premiums. Being aware of them can help you find ways to reduce the related expenses.
2. Compare policies
Once you know what kind of terms you want, you can start comparing insurers and different policies. You may also wish to contact an insurance broker to explain your requirements and have them do the legwork. You should compare as many policies as you feel able to in order to find the most suitable among them.
3. Read the fine print
Before settling on a life insurance policy, make sure you fully understand all the terms and conditions. You should not sign up without knowing about:
- Exclusions. The things not covered or the situations where life insurance will not pay out
- Loadings. These are premium increases applied to your policy
- Benefits. The meat of the policy, this is how much will be paid in the event of a claim and the situations in which you can make a claim. Avoid overlap with other forms of insurance where possible.
- Extras. These are optional extras which can be built into policies at an additional cost. These may include income protection and trauma insurance, funeral benefits, top up options, increased benefits for accidental death and other features.
If you have a policy which covers you for high risk activities or lifestyle factors, then it will typically be costing more than other life insurance policies. This means you can save even more by taking advantage of any discounts on offer, and otherwise finding ways to bump down your insurance premiums.
- Consider not getting cover for a dangerous job. Life insurance covers you around the clock, while workers compensation only pays out for misadventure while on the job. If you have a high risk occupation then you may wish to deliberately get it excluded in order to lower premiums, and choose to rely on workers compensation instead. Remember to check the WorkSafe benefits and entitlements in your state before doing this.
- Similarly, you might wish to exclude a risky hobby or pastime rather than pay extra to cover it. This can be a particularly good idea if you hold separate insurance, like a specialised health policy, to protect you while performing these activities.
- Take advantage of discounts when available. Insurers may offer discounts for signing up online, holding multiple policies with them or signing up if you already have family or friends holding policies with that insurer. Because these discounts are typically applied as a percent reduction in prices, the more you spend the more you save. More expensive high risk policies can greatly benefit from discounts.
- Proactively manage your risk factors. Being a smoker with a sedentary lifestyle might mean you have an even more extreme risk profile than someone with a dangerous job. Taking steps to address health issues and change your lifestyle isn’t always easy, but there are big financial benefits to doing so.
Both you and your insurer are legally obligated to act in good faith when dealing with each other. In the unlikely event that your insurer misleads you or you have any other disputes with them, you can report them to your state’s Australian Financial Complaints Authority (AFCA).
However, if you lie, mislead or otherwise knowingly fail to be entirely honest, then your insurer may cancel your policy without a refund. Even worse, they might use this as grounds to reject a claim even though you’ve paid premiums the entire time. You might be able to lower your premiums by fudging the truth, but it puts your entire policy at risk which defeats the purpose of even having insurance. When it comes to getting high risk life insurance, honesty is the other best policy.