WHY DO LIFE INSURERS ASK SO MANY QUESTIONS?

Also in this issue :-

Writing a will It’s a fact that an amazing 76% of the UK population do not have an up to date will Read more

In previous issues:-

6 April 2006  Will See a Revolution in Pensions 6 April 2006 is A-Day. It will herald the introduction of dramatic changes to the way in which pensions operate in the UK. It’s the most radical overhaul in decades, and it’s going to have a profound effect on the way everyone plans for the future. Read full article

THE PRIVATE RESIDENCE & INHERITANCE TAX The massive rate of increase in the value of property has had many effects. One particularly unpleasant downside is that more property owners will now be caught by inheritance tax when they die. READ MORE

TRADED ENDOWMENT POLICIES In the first of a series of features and articles, Nick Cosby of the Acumen Investment Partnership answers your questions on Traded Endowment Policies. READ MORE

You could be forgiven for asking, “what is underwriting and why does it matter to me?”  After all, most of us have no idea what happens to our application form when it goes to a life insurer for assessment.  And yet, this is a crucially important element of buying an insurance policy like Life Cover or Critical Illness Cover.  This is  because the answers you give on your application form allow the insurer to assess whether you are a higher than average risk to them.   The terms of your insurance cover and the price you pay will be based on the answers you give them. 

Forgetting to include information or leaving out information that you think isn’t important could mean that your policy won’t pay out when you make a claim.  If, for example, your GP has told you that your blood pressure is a bit high but you don’t mention it on your application form, this could be treated as non-disclosure when you come to make a claim.  The implications of this could be catastrophic.   The insurer could refuse to pay your claim and that could mean unexpected financial hardship, especially if the insurance was there to pay off the mortgage on the family home.

On the surface, underwriting seems quite a simple process.  Insurers ask you to complete an application form.  The form asks lots of questions that are designed to capture the information they need to build a clearer picture of you, and the factors which might increase the likelihood of you making a claim.   They will consider factors such as health, occupation, family health history, interests and lifestyle.   How long an insurer takes to process the application will depend on whether the underwriter can make a decision based on the answers in your application form, or whether they need to ask for more information. 

Depending on your answers to the questions the insurer asks, and the amount of cover you want to buy, the insurer may ask for a report from your GP. In some cases they may ask you to have a medical or undergo some tests.   Once they have all the information they need, the insurer will make a decision on how much your plan will cost. For example, if you’re a fit and healthy 30 year old and you don’t smoke, you can expect to pay less than a 50 year old smoker with health problems.   This risk assessment happens in all insurances.  A teenage driver with little road experience should expect to pay much more for their car insurance than a 40 year old who has been driving for years.  

The Disability Discrimination Act was introduced in the UK in December 1996. This Act makes sure that the underwriting process is fair and equitable.  Insurers can’t refuse or limit cover based solely on physical or mental impairments.  Underwriting decisions must be based on sound actuarial principles or actual or reasonable anticipated experience. 

Problems arise because most of us don’t understand the underwriting process.  We know very little about the many factors that make one person a higher risk than another.  This means that we don’t understand why underwriters need to ask us so many seemingly, intrusive questions.  We also don’t understand the relevance of the questions and the importance of the answers we’re being asked to give.  

Both insurers and advisers have a significant role to play in reducing the risk of non-disclosure to an absolute minimum.  Insurers need to make sure that their application forms are totally clear and easy to understand so that consumers do not inadvertently non-disclose.  Whereas advisers need to make sure that clients  understand that withholding information or even just forgetting to include it, could mean that their insurance policy may not pay out.

Writing a will

For a lot of people, making a will is the most obvious way to plan for the future and the fairest way to provide for loved ones.

Yet it’s a fact that an amazing 76% of the UK population do not have an up to date will. Dying without leaving a will is called “dying intestate”, which means that all your “wealth” is divided up between each surviving member of your family. If you haven’t any family or beneficiaries, it goes straight to the Crown.  The flow chart below demonstrates what happens in the event of dying intestate.

Another drawback of intestacy is the fact that it doesn’t recognise unmarried partners, friends or charities and such like. All this heartache – and the inevitable delays – can be avoided if you make a will.

We have a panel of recommended solicitors who can help advise you on the content of your will.  For a modest cost, writing a will could save your family many pounds – and much worry.