Not all life insurance policies are underwritten, but because some are, it is important to understand what the term means. 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 a 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 small proportion of applicants. And an even smaller number may not be eligible for cover at all. 

Remember, if you have access to insurance through a superannuation scheme via your employer, the insurance company may decide not to assess the risks for every individual in their scheme. Instead they may spread the risk across everyone in the group. This is called a ‘Group Policy’.