Factors affecting life insurance policy

Life insurance applications usually carry large amount of information relating to the insurability of the applicant such as employment, medical condition, and family history.

Why do insurance company need to appraise the risks in the life of a person?

This is to prevent anti selection. What is antiselection? Also known as adverse selection, is when an applicant gains a life insurance at a cost below his true level of risk. For example, a smoker who pays the same cost as a non-smoker with the same life circumstances is anti-selection. To guard against anti-selection, life insurance companies practice risk selection.

Pre-existing conditions

Are those medical conditions that exist at the inception of the policy. These are asked in the application form, and the proposal may be revised if there are pre-existing conditions that are deemed necessary for the change of premiums.

  • Contestability period – Life insurance usually has a contestability period:
    • Contestability period – this is a period of time where the company has the right to deny a claim. Any misstatement of material facts could void the policy during the contestability period.
    • Incontestability period – period where the company is already prevented to deny a claim.
  • Suicide provision – Under Section 183 of the Insurance Code: “The insurer in a life insurance contract shall be liable in case of suicide only when it is committed after the policy has been in force for a period of two (2) years from the date of its issue or of its last reinstatement, unless the policy provides a shorter period: Provided, however, That suicide committed in the state of insanity shall be compensable regardless of the date of commission.”

Minor policy owner

Note: When a company discovers that the policy owner was actually a minor at the time of application, they have the right to rescind a policy. Life insurance will ask about birthday, occupation and avocation or hobbies for the purpose of appraising the risk.

Smoking Habits: Smoker and non-smoker

Needless to say, smokers may have a higher premium than the non-smokers. 

Holding an elected or appointed position in the Government

Third-party or beneficial owner who funds the account

Payment of initial premium

Initial premium is the consideration required by the life insurance company to make the insurance coverage effective on the onset. A contract does not take effect without payment of the first premium to the insurer or agent. Of course, the payment of succeeding premiums according to schedule is also important to make the policy stay in force.

How about changing of occupation?

What if you as the policyholder change your occupation without notifying the company, might it affect your benefits under your policy? No. The benefits agreed upon the inception of the policy are the benefits insured all throughout and may not be changed when your occupation changes.

Sources of Information for Insurability

Sources of information that the insurance company may require from a client or agent pertaining to insurability are:

  • Medical examination report
  • Agent’s inspection report
  • Applicant’s personal appearance or body build
  • But note that tax records are not required

Effects of Failure to disclose

What if an applicant failed to disclose that he is already a high-risk candidate for high blood pressure during the initial years of policy? How will his contract be affected by such information?  In this case, the contract will be valid unless the insurer can prove fraud. It won’t automatically void the policy from the beginning – the insurer must first prove bad faith or fraud at the moment of the inception of the policy. This may entail investigation and responsibility on the part of the insurance agent.