Underwriting is a term used by life insurers to describe the process of assessing risk, ensuring that the cost of the cover is proportionate to the risks faced by the individual concerned. People with the same or similar risk pay the same or similar premium rates. The process of underwriting takes place when you submit your application. To assess a person’s risk, life insurers rely on information from a range of sources. If you are applying for a policy that is underwritten, as a minimum you will be asked to complete an application form and a medical questionnaire. Approximately 93% of applicants that go through the underwriting process will not experience any difficulty and will end up paying the standard premium rates for their life insurance. People who have a higher risk of developing chronic illness or who work in high risk occupations are usually required to complete additional forms and may be asked to pay an extra premium to cover this risk. This only happens to a low proportion of applicants. And an even smaller number may not be eligible for cover at all. Remember, if you have access to insurance through your super or through your employer, the insurance company may decide not to assess the risks for every individual in the policy. Instead they may spread the risk across everyone in the group. This is called a ‘Group Policy’.
Insurance underwriters evaluate the risk and exposures of potential clients. They decide how much coverage the client should receive, how much they should pay for it, or whether even to accept the risk and insure them. Underwriting involves measuring risk exposure and determining the premium that needs to be charged to insure that risk. The function of the underwriter is to protect the company's book of business from risks that they feel will make a loss and issue insurance policies at a premium that is commensurate with the exposure presented by a risk....