How do insurance companies evaluate your life insurance proposal form ??

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What does your life insurance policy depend on? It is common knowledge that the premium
depends on four factors.

1. Age
2. Sum Assured
3. Term of the policy
4. Type of plan (e.g. term, endowment, money back etc)

However, in addition to these four factors, a lot more goes into underwriting your life insurance
policy. In this article, we will discuss how life insurers evaluate the information provided in
insurance proposal form. Details provided by you in the proposal form are not just for the sake of
information. These details are used by the insurers to underwrite your life insurance policy.
Insurers may charge additional premium or even reject your policy proposal based on the
information provided in the proposal form.

Personal Health

Addiction to tobacco and alcohol adversely impacts your premium. Most insurance buyers are
aware that smokers have to pay a higher premium compared to non smokers. In addition to
disclosure regarding addiction to tobacco and alcohol, the insurance buyer may also have to
disclose the duration for which he or she has been addicted. The insurer uses this information to
determine the risk profile of the insurance buyer and hence the premium.

Medical History of the insured

Medical history is an important determinant of longevity and as such is an important consideration
for the insurers. Your medical history will impact your risk level. If you have a history of minor
ailments then it most probably will not impact your premiums. However, in case of high risk
diseases like cardiac conditions, chronic kidney disease, cancer etc, premiums are likely to go up.
If you fail to disclose your medical history accurately, the insurer may reject your death claim.

Family Medical History

In addition to your individual history, the insurers also look at family medical history because
certain diseases are genetic, e.g. cardiac ailments, certain types of cancer etc. If a family member
of the insured is suffering from a serious ailment, which is hereditary in nature, then the risk profile
of the insured may be impacted adversely. Further if multiple members of your family are suffering
from the same ailment, then the insurer will assign a higher risk to you.


Certain occupations are considered to be more risky from a health perspective. If you have
occupational hazards that may put your health and safety at risk, then your insurance premium is
likely to go up. However, it is not just jobs with occupational hazards that impact your risk profile.
Some insurers also associate desk jobs with a higher risk of cardiac diseases and assess the risk
of the insured, as such.


Why is your income important to the insurer? The reason is that, the insurers do not want you to
be over-insured. What does being over-insured mean? It means that your cover should not exceed
the loss of income in the event of an unfortunate death. Insurance companies use a concept called
Human Life Value (HLV). In simple terms, HLV is the maximum amount of total sum assured you
can get. Your HLV is determined by your income, whether from profession or business, and
therefore your income is an important consideration for the insurers.


You may ask, "Why is qualification important for life insurance?" I had the same question. I learnt
that life insurance companies view people with more education as being more health conscious
and therefore at a lower mortality risk compared to people with less education. Therefore, it is
important that you fill the details of your educational qualifications correctly in the proposal form.

Existing Policies

Insurance companies look at the total sum assured of your existing life insurance policies relative
to your HLV before granting you life insurance cover, in order to ensure that sum total of the cover
from all policies do not exceed the HLV. As discussed earlier your insurer would not want your
total sum assured from all your policies to not exceed the loss of income in the event of an
unfortunate death.


In this article, we have discussed how life insurance companies evaluate the information provided
in the proposal form. Insurance buyers should carefully fill all the details in the proposal form
correctly. Failure to provide correct information in the proposal form may cause your death claim to
get rejected. Even if your insurance agent fills the proposal form on your behalf you review it, and
promptly notify your insurance company if you want to correct any information.

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