Occupational Risk

Leisure activities pursued by the proposer may also add to the risk involved for the life office. Flying (as a pilot), gliding, rally driving and mountaineering are among those that some offices will regard as requiring an addition to the normal premium.

As an alternative to an extra premium, an office may agree to apply a "debt" to a policy and this means that in the event of death they will deduct an amount from the sum assured; this amount may be fixed or it may reduce year by year over a fixed term. In effect, a proposer backs himself against the underwriter's judgement. While this solution may be practicable under an investment contract, it is not to be recommended under a protection policy.

As was noted in Section N, the cost of pure protection policies escalates far more rapidly than the premiums on investment-oriented ones, and the same principle applies to loadings. The loading applies only to the "risk" premium, i.e. that part of the premium which is charged for the mortality risk. The bulk of with-profit premiums are for investment. Therefore the same loading factor which will produce an increase of N00% in the cost of a term assurance policy could increase the cost of an endowment policy for the same term by only N0%. Given the disparity in the apparent effect of loading, a proposer might feel tempted to drop the protection proposal - but if the company's assessment is right, then it is far more important to take out the term assurance policy.

The Policy Document

Once the proposal form is filled in, the proposer has to wait until the company has assessed it, obtained (in some cases) a medical report from the proposer's doctor, and decided whether or not to accept the risk. If it does, it will generally send a letter saying so and asking for the first premium; it is only after this first premium has been paid, or more exactly after it has been received by the company or its agent, that the cover commences. (A few offices now allow the first premium to accompany the proposal form on simple types of policy, in which case cover commences as soon as the company accepts the proposal.) Only after it has received the first premium does the company prepare and send out the policy document, setting out the terms of the contract. The policy document should be kept with care as it will be required (a) for a claim and/or (b) if the policyholder wants to borrow against the policy. If it is lost, the company may for a fee issue a duplicate, but before doing so will require the policyholder to sign a form of indemnity. In the large majority of cases where people think they have lost their policy document, a thorough search will normally uncover it, perhaps in the hands of a bank manager, solicitor or accountant.

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Impaired life

If the proposer is found to be what the underwriters call an impaired life (i.e. someone with less than average life expectancy) then the question is how much extra premium they will require on a given policy and sum assured. Practice varies widely, first in regard to the normal acceptable limit for "first-class" lives - some companies will take on at normal rates those whom other companies would require to pay an extra premium - and secondly in regard to the actual loading of premium required for particular ailments or disabilities. One company may regard a minor thrombosis lightly and require no... see: Impaired life

Of interest