If you are worried that poor health may disqualify you from taking out life, disability or critical illness cover, take heart: life assurers won’t automatically decline your application, but will assess your individual risk factors and decide what cover to offer and the premium.
Less than two percent of applications for cover are rejected, Dr Marion Morkel, the medical officer at Sanlam, says.
“We realise people need long-term insurance, because it protects their financial interests. We are here to offer that service. We decline reluctantly,” Dr Dominique Stott, the executive of medical standards and services at PPS, says.
When you apply for life assurance, the provider assesses the likelihood that you will claim for specific benefits. This assessment is based on the information you provide in the application form and on medical tests or records.
If the risk factors for developing a disease are present, or you have had a serious illness, such as cancer, your case – known as a non-standard life – will be individually assessed to determine the benefits you can be offered and at what rates.
An assurer has several options if you are a non-standard life, Schalk Malan, the executive director of actuarial at BrightRock, says. These include premium loadings and excluding certain activities, health conditions and benefits from being covered.
Cover at a higher rate
“A loading is an additional cost applied to your premium when a life assurer believes that, statistically, you are more likely to claim than the average person,” Hayley Taylor, the head of underwriting at Hollard Life, says.
Loadings are a certain percentage above the rate for clients with a standard rate profile, usually expressed in increments of 25 percent, Morkel says.
Loadings of 50, 100 and 200 percent are common.
“Every company determines the level or threshold at which they would not offer above this rate. This threshold is usually determined by affordability. It makes no sense offering a product that is completely unaffordable and that, over time, costs more than the potential benefits embedded in the products offered,” Morkel says.
She says that, as general rule, an application is declined when the rate is three-and-a-half times the basic premium.
Gareth Friedlander, the head of research and development at Discovery Life, says Discovery generally declines policies when the mortality risk is greater than 400 percent of the standard rate.
The cost of a loading is not just the higher premium; there is also an opportunity cost. For example, you will have less money to contribute to retirement savings if your life cover is expensive. However, you have to weigh up the extra cost against the financial risk of not having cover at all.
“An exclusion is applied to your policy if an assurer determines that the risk of you making a claim related to a medical condition, dangerous hobby or risky occupation is too great. In that case, an assurer would provide you with cover with no additional cost, but let you know upfront that it won’t pay a claim related to that specific condition, hobby or occupation. Exclusions can be permanent or for a specific period of time,” Taylor says.
You may be concerned that excluding claims for certain conditions negates the point of having cover in the first place, but Taylor disagrees.
“Exclusions are often very specific, which means they limit your ability to claim as little as is reasonably possible,” she says.
Malan says: “We try not to prejudice the client against injuries that would have occurred irrespective of the condition. An example of our approach was where we had a client with an existing back condition that resulted in an exclusion on the existing back ailments. The client sustained a new injury to the back in a car accident, and, as a result, the cover paid out for this injury, as it was in no way a result of, or aggravated by the existing condition, and the exclusion did not apply.”
Individual risk assessment
Because each non-standard life is assessed individually, there are no set rates for certain conditions. An assurance company will be able to tell you what benefits it will offer once it has assessed your application.
“Rates differ from case to case and depend on numerous factors, including age, risk factors and what type of cover is applied for. Insurers are very individual in their treatment of non-standard lives,” Hesta van der Westhuizen, an advisory partner at Citadel Wealth Management, says.
In her experience, Van der Westhuizen says life companies have become more willing to consider offering cover to clients who are not in perfect health, or who are at risk of developing a condition, or who have suffered an illness.
Stott uses the example of a person who had a minor heart attack five years ago. Since then, he has followed treatment and lifestyle programmes to reduce his risk factors – for example, controlling his cholesterol and weight. An underwriter would take this into account when assessing his risk, and although it is unlikely that he will be offered cover at standard rates, he is likely to be offered cover with a loading on his premium, Stott says.
The principles are similar where an applicant had cancer, but is now in remission.
“The underwriter would need to assess the long-term outcome (which is key to the decision-making process) based on various pieces of supporting information, like the type and stage of cancer at diagnosis, type of treatment received and time elapsed since completion of treatment,” Dr Philippa Peil, the chief medical officer at Liberty, says.
The type of treatment is also important in assessing risk, because certain treatments for cancer have long-term side-effects that increase the risk of developing other conditions, such as heart disease, Stott says.
Some assurers will provide cover for certain types of cancer if the remission period has been longer than two years, whereas others require remission of five to seven years before they will consider an application for cover.
If the risk factors for developing a serious illness are present, your risk and rating will be assessed based on the information provided.
Taylor cites the example of a 40-year-old man who has high cholesterol, a family history of high cholesterol and a father who suffered a fatal heart attack before the age of 50. This would place him in a high-risk category, and an assurer would apply a loading to his premiums for life, critical illness or disability cover.
But there are cases where the presence of risk factors does not mean that the risk is higher. Dr Morkel uses the example of breast cancer.
“If we are aware that a female applicant has a strong family history of breast cancer as a result of a specific gene mutation, this would place her in a sub-standard rates pool. However, on closer inspection, we discover that she has tested negative for this gene mutation and she has regular breast check-ups, all of which have been normal.”
These are regarded as merits that would change the initial risk assessment, she says.
Reviewing a premium loading
Most life assurers are prepared to review premium loadings and exclusions if there has been a significant change in your health, Van der Westhuizen says. This includes evidence that your current state of health is not as it was assumed to be when you were assessed initially, or that your condition has improved – for example, you had excessively high blood pressure, but it has been brought under control.
Some assurers may require you to monitor your condition, while others have programmes that are designed to control your medical condition.
Friedlander says Discovery Life will soon introduce a Managed Care Integrator that will enable certain policyholders to reduce and ultimately remove their premium loadings if they manage their health conditions via a managed-care programme provided by Discovery Health or Vitality. However, loadings for certain conditions – for example, coronary artery disease – are not reviewable, he says.
If your policy has a loading or exclusion, ask your assurer or financial adviser when and under what circumstances it can be reviewed. Remember, that if you have to undergo a medical test, the cost is likely to be for your account.
Should you try to obtain a lower rate if your premium has been loaded?
Van der Westhuizen says that, when you apply for cover and have to undergo a medical test, the results are stored in a central information register that is accessible to all assurers. Therefore, all life assurers will make similar decisions about the premium charged.
Loadings are pretty standard across the industry, Carina Knill, a financial planner at the Hereford Group, says.
Malan, however, believes it is worthwhile to shop around.
He says there are providers that use the latest needs-matched pricing technologies to better match cover to clients’ needs and deliver more value – an average of about 40 percent more cover per premium rand.
“This saving extends to non-standard lives, and is perhaps even more important where loadings impact on traditional policies, as efficiently priced premiums can serve to negate or reduce the impact of loadings significantly,” Malan says.