What does an underwritten insurance policy do

In New Zealand, there are many different places, websites, companies and organisations to obtain life insurance from.  Many people choose to get life insurance quotes for their family. But while there are so many different options, not all of them are generally good options.

With a life insurance policy, you can often be paying a minimal amount of money, with the hope that if a person dies, a payout of as much as $500,000 or even $1,000,000 could be received. While some insurers are extremely reputable and reliable in what they do, there are some market offerings that pose a significant risk.

One of these risks is a policy that is not underwritten. It presents a massive loophole that could mean an insurer declines your claim. That could mean that your family is shortchanged and not receiving any money in the event of the insured person’s death.

So what is underwriting?

Underwriting is where the insurer asks you an in-depth amount of questions to understand your situation before approving an application for insurance. These can be questions relating to matters such as:

Your medical history – Medical issues, injuries, signs, symptoms, tests, and many other matters you’ve had in the past.

Your occupation – The type of job you have. Also if you are employed, self employed, etc. If your job has any hazardous risks. If you work from home. What your earnings and hours of work per week are, etc.

Your family history – Questions around tests and the medical history of family members, such as your mother, father, brother, sister, etc.

Your pursuits – Things may do that could be risky, such as hunting, martial arts, flying, etc.

Your height and weight,

And numerous other matters

The insurer’s underwriter then assesses your situation and determines upfront if you are suitable to be covered for, based on the information provided to them.

Then what’s non underwritten?

Non underwritten is where a company does not underwrite a policy upfront. That means that they make the application process typically shorter and easier, but it means that they do not ask these questions.

The ‘catch’ is likely to be that when someone dies, or it is time to pay out, they will review the matter and after the fact, and there is a significant risk they are not going to cover the person.

For example: Some policy wordings say that if before you started your non-underwritten policy, if there was a health issue or pre-existing condition, leading to the cause of your death, it would not be covered.

What does that mean?

There can be an extremely high risk in a policy that has not been underwritten, or even a policy that has not been underwritten correctly and in great detail. The risk is that they may tell you that you had a situation that was too inappropriate to receive cover in the first place. That might mean that even if you were paying your insurance premiums for years, you will not get any pay out!

That’s why many people prefer to have underwritten policies. That means that before you start paying premiums, you can disclose information about yourself to the insurer. They can then provide greater certainty as to what you are covered for.

So what can you do?

Talk to a professional financial adviser with knowledge around insurance to see if they can help you. They can usually arrange an underwritten policy, which will mean that you will know if you can be covered, well ahead of claim time.
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