Life Insurance and Your Mortality
They say that nothing in life is certain. Well one thing certainly is; your mortality. It’s just a matter of how mortal you are. At least that is how life insurance companies try to look at it. Ever wondered how mortality is measured and how that may affect your insurance premium?
When you apply for a life insurance policy you will complete a questionnaire. This will provide the insurance underwriter with personal information such as your past, current and genetic health situation. Based on this information they may request additional medical examinations in order to better understand your situation. This helps them determine whether it is a health factor they should consider or treat as irrelevant during their assessment of your application.
Life insurance companies have a system for rating you and your mortality. This is largely based on statistical mortality rates used by insurance underwriters. Simply put this is a system of classifying people into mortality groups using a ‘numerical rating system’. Each health factor considered affects mortality, either positively or negatively. If you look at this as a credit or debit system then the process is a little easier to understand.
Assume that every health factor is assigned a value. The combination of these individual scores then creates a ‘risk score card’ for the applicant. The higher the score, the higher the risk and most likely the higher the cost to you.
Let’s assume the standard mortality group is represented by 100 points and is assumed to represent all of the manageable or expected health challenges faced by the average person. This is then offset by debits for unfavourable factors such as impairment and credits for favourable factors. For example, assume an applicant has high blood pressure but a normal ECG then the score card may look something like this:
(High Blood Pressure 200pts) – (Normal ECG 50pts) = (Extra Mortality 150pts)
The mortality score for this person has gone up from the standard 100 points by 150 points to 250 points and therefore a new mortality grouping. Not great, but it would have been worse if that person didn’t have a good ECG.
Under certain circumstances the extra mortality of two impairments could be greater than the sum of the two. The interrelationship between the impairments could cause a further increase in the mortality rating. For example, assume an applicant has high blood pressure and is overweight then the score card may look something like this:
(High Blood Pressure 200pts) + (Overweight 25pts) + (Combination 50pts) = (275 Extra Mortality points)
The mortality score for this person has gone up from the standard 100 points by 275 points to 375 points and therefore a new mortality grouping.
The insurance underwriter then uses the score to determine the risk associated with the application. This risk is then used by the actuary to calculate an appropriate premium for the applicant. Therefore a person’s medical condition and the mortality score have great relevance to the life insurance policy.
All of my examples have been created to help explain how the process works. Everyone is different. If you want to understand it in context of your situation you must speak with a qualified insurance adviser.
