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How does health conditions affect the premium rates in term insurance policies? | FAQ #29

Last Updated: Jan 11, 2021 | 8,222 Views
The health of the person taking a life insurance policy is very important to the insurance company underwriting the risk. Let me explain this with the help of some simple scenarios.

In the case of life insurance, the insurance company is agreeing to pay the nominee of a policyholder in case the policyholder dies during the term of the policy. Now the policyholder maybe die due to an accident or due to an illness. The insurance business is all about statistics and probability. They are in the business of covering risks and your health surely has a bearing on the risk which they are covering. They have to build a model wherein they will make some assumptions to the overall number of deaths that will happen if they issue policies to say a 1,000 customers. This will be based on some assumptions (which is again based on historical data) on the number of people who may die to due an accident or due to some health conditions. Of course, this is a very simple scenario and in reality it will be much more complicated.

So here is where, your health conditions become very important. In case a particular customer is healthy, they will be considered as less risky and the premiums also offered will be low. In case, you have some ailments, then the insurance company will assume that covering your life is more risky and hence will increase the premiums for you. The insurance company needs to price their products to the risk they are under-writing. Only then will they be able to do business successfully and serve all their clients fairly.

This is true for all life and health insurance policies. Basis the underwriting norms, insurance companies may either increase the premiums for you or even refuse to cover the risk (not process your application). In case they have collected the first year’s premium and then refuse to accept the application, the insurance company will refund the premium collected.

So best to go in for a term insurance cover when you are young and healthy. Your premiums will be really low.

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