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How are your life insurance premiums calculated

How are Life Insurance premiums calculated?

Author: Daniel Sharpe-Szunko

It’s important to understand how your life insurance premiums are calculated so you know what you’re paying for. Life cover is mainly designed to protect your family, home, and business if anything happens to you.

Ultimately if you were no longer around to support your family or your income was impacted because of an illness or accident, these policies would relieve the financial burden. Life insurance, critical illness cover, and income protection all come under the same umbrella of personal protection products.

Life insurance is the main type of cover because it’s the most common and the most affordable. This is simply because you’re much less likely to have to claim on a life insurance policy than critical illness cover or income protection.

A life policy is a contract between you (a policyholder) and an insurer. The policy becomes valid when premiums are collected (monthly or annually) after ‘acceptance terms’ are issued.

The policy is set to cover an amount (sum assured) over a period of time (term) to pay out to on death, serious illness, or accident (depending on the cover type).

What is life insurance?

A life insurance policy is simply a policy that pays out to a beneficiary (e.g. wife, children, partner, or family) in the event of death. This pay-out is usually a tax-free lump sum that can form part of your estate or this can be avoided using a Trust.

Life insurance also comes in 4 main forms which are all designed for different purposes depending on what you want to cover:

  • Level term (family protection) which is simply to protect your loved ones in the event of death
  • Decreasing term (mortgage protection) which is specifically designed to cover a mortgage (repayment mortgages only)
  • The whole of life is a more recent addition to the life insurance market which is a non-investment based guaranteed life cover
  • Family income benefit is also a newer type of cover which is specifically for your family and provides an annual income rather than a lump sum

All of these different types of life cover also cost different amounts per thousand pounds because of how they payout. The whole of life is always the highest because it is guaranteed to payout (as long as you continue to pay your premiums). Family income benefit is the cheapest because the amount of cover reduces faster than the other types of cover.

How are basic life insurance premiums calculated?

A life insurance premium is made up of several main factors before health and lifestyle are taken into account. These are the things that would be taken in to account to give a base premium, which includes:

  • Age (Note: every time you pass a birthday your premiums will increase)
  • Smoker status (Note: No nicotine or nicotine replacement products for at least 12 months to be classed as a non-smoker)
  • Sum assured (amount of cover)
  • Term (length of policy in years or to age)
  • Type of cover (e.g. level term, decreasing term, family income benefit or whole of life)

Note: Gender– In February 2012 the EU Gender Directive made it illegal to use gender to differentiate between individuals for insurance

What else is used to calculate a life insurance premium?

There are also several other elements that are used to calculate the premium that a person (policyholder) will pay for cover. The following elements are behind the scenes calculations which will also be different for each insurance provider.

Underwriting process

When an application is submitted to an insurer, it will enter one of several potential routes depending on the disclosures. Generally the more complex the disclosures (e.g. medical conditions, hazardous occupations, and dangerous activities) the more work that will be required at the back end.

The various types of underwriting processes are:

Underwriting Rules Engine (URE’s) which is where modern technology is used to apply a premium based on disclosures on an online application. Usually, an insurer will allow a system (URE) to make a decision up to a set threshold (level of risk)

Manual underwriting is simply where an application will be referred to an underwriter (a person who assesses risk) to calculate a premium. An underwriter will also have certain limits that they will be allowed to go to before the next stage

Nurse screening or telephone medical will be used to gather additional medical evidence via a professional (e.g. nurse). These tests will usually include BMI (height & weight), blood sugar levels, cotinine test (smoker test), and blood pressure

Full GP report (medical report) which will be obtained directly from your GP or Doctor to provide a full breakdown of your medical history. Medical reports are usually for more complicated medical conditions or where symptoms are more severe

Once the underwriting process has been completed by whichever process, a premium will be offered based on the information provided. Each insurer has a different set of parameters for each person’s circumstances based on their ‘underwriting philosophy’.

Mortality and Morbidity data

All life insurance offices will have a team of actuaries who are mathematical people that calculate risk. These people will constantly be looking at trends in data which helps them to make decisions for certain groups or risk categories.

Some of the most common types of morbidity are heart disease, cancer, chronic lower respiratory diseases, stroke, diabetes, pneumonia and influenza, Alzheimer’s disease, kidney disease, and suicide.

Also, co-morbidity is where two conditions occur simultaneously in the same person. The conditions don’t need to be directly linked to a cause, however, they may often occur together. Some examples of co-morbidity are depression, diabetes, and obesity which often occur together but are not likely to have the same cause.

There is no exact science as to how an insurer will calculate a premium for an individual, however, the insurer will use this information to calculate the risk of death. It is a fair assumption for example that a person in their 50’s is more likely to fall ill or have an existing medical condition than a younger person.’

Costs and margins

Any business will need to make sure that it is profitable and insurance is no different. There is a cost associated with running an insurance company and for processing an application. Each insurer will have its own costs and these will be different depending on the size of the provider and how they operate.

There are several main costs that will be taken into account when processing an application for life insurance. Some of the main costs will include:

Underwriting – a team of underwriters is a cost to a business so that must be taken into account

Medical evidence – medical reports from a GP or doctor will cost anywhere between £60 and several hundred pounds

NTU rates (not taken up) – every time an application is processed that is either declined or not accepted, there will be a cost associated with that

Lapse rates (canceled cases) – if a policy is canceled within a certain period of time then it may then incur a cost to the insurer

Generally bigger insurance providers are more efficient than smaller or newer insurance providers so can therefore drive lower premiums. Profit margins for life offices are difficult to project as they are forecasts based on future premium collections and potential claims.

For more information about this subject, you can contact one of our team of experts at iam|INSURED on 01244 732896.

Why have I been refused life insurance and can I still get cover?

What to do if you’ve been declined life insurance in the past

(Author – Daniel Sharpe-Szunko)

A lot of people come to us after they’ve been declined life insurance previously. Nobody likes to be turned down for anything and life insurance is no exception. It can feel demoralising or even offensive if you have a medical condition and you get told cover isn’t available.

There are several main reasons why you might have been declined for life insurance by an insurer. It’s important to remember that insurers are all different so just because you’ve been told no before, that’s not always the end of the road. Feeling annoyed or frustrated is totally understandable and it’s natural to question whether applying again is worthwhile.

Why have I been declined life insurance?

You could have been refused cover for several reasons which are unfortunately quite common. Most life insurance applications are declined because of medical conditions, occupation, or dangerous activities.

If you’ve applied for cover in the past and your application was refused, then it might be because of:

  • Insurance advisor might not have the expertise and the skills to find an appropriate or suitable insurer
  • Insurance providers have different underwriting philosophies so some may decline cover where others could accept. Your adviser should be able to identify which insurers are best for each situation and person circumstances
  • Medical disclosures might be incorrect or inaccurate so it might be that there was a simple error with submitting your application
  • Medical evidence may be requested in some instances which can expose additional elements that can cause concern. It’s important to know what might be on your medical report before applying for cover
  • The timing could be wrong so you might have applied when your medical readings were high or not as well controlled. If you’ve made changes to your lifestyle or treatment which has improved your condition then things will have changed
  • Smoking is sometimes a red flag with life insurance and especially with certain medical conditions, such as diabetes, cardiovascular, and lung disorders. If you quit smoking more than 12 months ago then definitely try again
  • Underwriting changes could mean that cover that wasn’t available before has now become available. Underwriting philosophies can and do change so you should keep checking just in case this happens

Does being refused life insurance have any impact on future applications?

You should know that insurers do not share personal information about individuals. The only real reason why being declined cover might have an impact in the future, is if you re-apply to the same provider.

It may just be as simple as you didn’t remember which company had declined you in the past, or you didn’t know who they were. It’s a common and simple mistake so don’t worry if this happens. This happens to lots of people and is certainly not an issue so let someone find the right insurance provider for you.

What are the main medical reasons for declined life insurance?

Some of the main things that could cause a medical decline for a life insurance application are:

  • A recent diagnosis such as cancer or heart attack
  • Ongoing treatment which includes chemotherapy and radiotherapy
  • Combinations of conditions such as Diabetes and Heart Attack
  • Undiagnosed conditions where symptoms are identified
  • Outstanding investigations, results, or surgeries
  • Higher than normal results or readings (such as blood sugar, cholesterol, or blood pressure)

You should know that there are usually other options and solutions in a lot of these instances so don’t be put off. It might also be a case that cover may not be available now through mainstream insurers but there are other options.

Do life insurance companies share medical information?

The simple answer is no they don’t unless it is agreed by the insurance companies and the applicant. Generally, this does not happen more often than not because of the potential issues around data protection and sharing of personal data.

Do I have to pay more for life insurance because I’ve been declined?

Again the answer isn’t necessarily yes and some insurance companies might still offer cover and even be cheaper. Insurance underwriting is a complex calculation that is individual to each company and pricing will vary from one company to another.

If you’ve had a quote from a company in the past then by shopping around and applying to the right insurer, you might still be able to get cover cheaper. Your insurance adviser should help you to find which provider is the cheapest and who will accept you.

 

Cancer Survival Rates and Critical Illness Cover

The facts about Cancer Survival Rates and Critical Illness Cover

With increases in knowledge, funding, and research, Cancer survival rates in England and Wales are continuing to improve. Figures from a recent study conducted by Cancer Research UK have shown that around 50% of cancer patients are surviving for at least a decade after their treatment and diagnosis. This is a vast improvement from figures in the 1970s, in which around 50% of cancer patients died within the first year following their diagnosis. This does however depend on the type of cancer that has been diagnosed. Breast Cancer is now one of the most treatable cancers, with a high success rate. In comparison, only 1% of pancreatic and 5% of lung cancer patients can expect to survive for 10 years. If you are or have been a Cancer patient, you may want to investigate Critical Illness Cover to protect you and your family.

How do Cancer survival rates affect critical illness cover or income protection?

As an example of a well-known underwriter, in 2012 Aviva paid out over £77 million to just below 1,000 of its customers with critical illness cover who had been diagnosed with Cancer (an average of £79,500 per customer). Aviva also paid 157 individual income protection claims for cancer over the same period. The most frequent Cancers claimed for through Aviva in 2012 where the following:

  • Breast
  • Gastro-intestinal
  • Skin
  • Haematological (relating to the blood)
  • Gynecological
  • Prostate
  • Testicular
  • Thyroid
  • Head and neck
  • Kidney

Cancer critical illness cover amounts

Critical illness cover is slightly different from life insurance in the sense that it is designed to provide a lump sum payment if you are diagnosed with a critical or serious illness. Most people relate this type of cover to Cancer, which is the biggest reason for claims for critical illness cover. Things to consider are:

  • Income (after Tax)
  • Mortgage payments (annual)
  • Cost of living (annual)
  • Any other possible costs (e.g. medical treatment or adaptations)

Up to recently, it has been either very difficult or impossible in a lot of cases to get Cancer critical illness cover, but that is changing so it is definitely worth speaking to a specialist at ian|INSURED, who will help you get the best cover for your circumstances at an affordable price.

Facts and figures about Cervical Cancer

Facts and figures about Cervical Cancer (Author: Caroline Sharpe-Szunko)

iam|INSURED is the UK’s #1 insurance expert for people with pre-existing medical conditions which includes all types of Cancer such as Cervical Cancer. Generally, it is possible to get life insurance if you’ve been diagnosed with Cervical Cancer even

About Cervical Cancer Awareness Week

Every January there is an event which is held by Jo’s Cervical Cancer Trust which is one of the UK’s leading charities to help support people who have been diagnosed with Cervical Cancer. This amazing charity was founded around 1999 to provide vital information and support to women living with or who have been diagnosed with the condition and does some incredible work.

How can Cervical Cancer affect women?

As a female myself, I am only too aware of how much stress and how traumatic it can be to even just have a Smear test. Those women who have shared the experience of having an abnormal smear result will know how much of an impact this can have on you both mentally and physically.

The harsh reality of abnormal smears can cause a major strain on any woman and can happen at any age, regardless of whether they have children or not. Results of an abnormal smear will also usually take a couple of weeks to be processed currently on the NHS which can also cause additional stress but of course does not necessarily result in a diagnosis of Cervical Cancer in the vast majority of cases.

The NHS is generally very good at providing women in the UK with Smear tests regularly and will also often process results within a couple of weeks. Cancer treatment in the UK on the NHS however can be slightly restricted compared to what treatments might be available through a Private Medical Insurance policy.

Private Medical Insurance can be very cost-effective and prices have reduced dramatically so it is worth considering taking out a policy that covers cancer treatment. Most modern private medical insurance policies will provide cover for specialist cancer treatment through a private hospital which can be vital when someone has been diagnosed with cancer.

What is Cervical Cancer?

This type of cancer forms in the cells that line the cervix walls which is the narrow and lower section of the womb (uterus) that joins with the top of the vagina. It is important to have regular smear tests (screening) because cervical cancer doesn’t show any symptoms in the early stages where it is mostly preventable.

According to statistics, 99.7% of cases where women have been diagnosed with cervical cancer is caused by persistent infections of high-risk HPV which can result in changes to cervical cells. HPV is a very common infection amongst women and approximately 1 in 5 (80%) will contract one type of the virus at some stage in their lives. The main way that HPV can be spread is by skin-on-skin contact around the genital area which means that anyone who is sexually active is at risk of infection.

Statistics about cervical cancer in the UK:

  • Cases: There were 3,192 reported cases of cervical cancer in the UK (average between 2014-2016)
  • Survival: 63% of women will survive cervical cancer for over 10 years in England and Wales (2010-2011)
  • Deaths: According to statistics there were 852 deaths from cervical cancer (average between 2015-2017)
  • Prevention: It is suggested that 99.8% of cases where cervical cancer is diagnosed are preventable

What is HPV?

Human papillomavirus (HPV) is a very common infection amongst women and approximately 80% (1 in 5) will get it at some point in their lives. Generally, the body is able to deal with contracting the virus by itself and can often come and go without even realising there has been an issue.

HPV is the name used most commonly for the virus which is an infection of the skin and moist membrane (mucosa), including:

  • Cervix
  • The lining of the throat and mouth
  • Vagina, Vulva, and Anus

The virus is usually contracted through sexual contact which is the main reason why there is a stigma causing embarrassment and also why women do not go for screening as regularly as they should.

Types of HPV

According to medical experts, there are around 200 different strains of the HPV virus that are known and different types will affect different parts of the body.

HPV strains are split into two different types which are:

  • Low-risk HPV
  • High-risk HPV

Low-risk HPV is the most common form of the HPV virus which can cause minor symptoms such as warts on the hands and feet or genital warts.

High-risk HPV is the form of HPV which is connected to some cancers and therefore the most dangerous strain of the virus. With both strains of HPV, the body will often deal with it itself which means that it can simply disappear without ever knowing it was there.

HPV and cancer

There are 13 types of HPV that are linked to cancer which are known as ‘high-risk HPV’.

If you are diagnosed with high-risk HPV it does not mean that you will get cancer and in the majority of cases, it will go without ever knowing it was ever there.