Under-Average in Life Insurance Underwriting

Certain terms like “under-average” can be quite daunting for someone new to insurance, most especially new insurance students. It is to such people that posts of this nature on this site become quite helpful.

In insurance, we talk about “life insurance” instead of “death insurance,” and we have “underwriters,” not “undertakers.”

It is useful to start by clarifying what underwriting means.

When you approach an insurance company for a life insurance protection, the company will take a look at your application form to know certain things:

  • how much money you have chosen to be paid to your beneficiaries if you should pass away (i.e. the sum assured);
  • how great your health is based on the health-related questions you have answered;
  • your habits, occupation and pastimes;
  • who your beneficiaries are;
  • the type of cover you want and for how long;
  • your weight, height, age etc.

The main aim is to determine whether you should be granted the required life insurance cover, and the appropriate premium (i.e. price) you should be charged if your application is to be accepted. This assessment process is known as underwriting in life insurance. It may sometimes involve the company asking you to undergo some medical tests just to be sure that you’re healthy and you will not pass away shortly after the cover is granted.

If, at the end of the assessment, you turn out to pose additional risk to the company due, for instance, to your health status (e.g. overweight, underweight, hypertensive, diabetic etc.), you will be considered to be an under-average risk.

Some applicants do wonder why they are being told that they’re under-average when, indeed, their weight is above average. That’s where insurance terms may not necessarily follow the common language. Yes, ordinarily, an overweight person is above average in terms of size/weight, that very much translates to an additional health risk of note in life insurance underwriting.

In life insurance business, you’re an average life if you fall within the normal parameters taken to be acceptable for the insurance company. In this case, average means “standard” or “normal” risk – good health, good lifestyle, low risk occupation etc. Under-average is therefore a “sub-standard” or “abnormal” risk.

But that does not mean that your application will be rejected because you’re an under-average risk to the company. Rather, the company can grant you coverage based on certain conditions; the commonest of which is to charge you an additional premium to compensate for the extra risk that your condition presents.