Get the right life insurance policy

The UK life insurance industry collectively, provides some of the best value term insurance in the world but that doesn't mean the rate your life policy is charged at is the best value for you!

Life insurance companies do differ in the rates they offer and careful examination of benefits, terms and conditions could yield savings on your monthly premium. Such product discrepancy in the face of what seems a straightforward buy is due to several factors but the underlying one is the company's underwriting philosophy and interpretation of mortality tables.

Based on statistics provided by the Government Actuary a mortality table shows for a given age for male and female at the start of a year, the likelihood of dying within 12 months and, under normal circumstances, the life expectancy that can be reasonably entertained.

For example, a 30 year-old male has a 1 in 1100 chance of dying within the year and a life expectancy of 45 years. (For a female of this age the statistics are 1 in 2325 and 50 years).

The trouble is mortality tables can't keep up with advances in medical treatment and diagnostic techniques. Despite population surveys and regular updates they always lag behind, meaning that insurance companies and their underwriting departments have to assess ongoing health trends before arriving at 'normal' or standard rates for different age groups.

In the late 1980s, for instance, initial concern over the AIDS death rate prompted some companies to raise premium rates considerably for perceived risk groups such as single, bisexual and homosexual men. Age didn't really come into the equation; only when initial fears over the spread of the disease abated did premiums start to come down again.

How rising life expectancy has confused matters

In the past 100 years, life expectancy from birth for men and women has increased by over 50%. In 1996 the mean age of the UK population was 38.4 years; by 2015/16 this is expected to be 41.2 years. Ten years ago it was calculated that a man aged 80 could expect to live 25% longer than his counterpart in 1960 (women's chances improved by almost 33%).

Better medicine, fewer infectious diseases and improved food and diet have hallmarked the past 40 years; but now we're faced with obesity-induced life threatening situations or the possibility of a global avian flue epidemic. Life is not easy for the underwriter.

Add in such ingredients as the company's marketing strategy, its targeted age and/or professional groups (with their own specialised mortality ratings), in-house concerns over such financial mysteries as free asset ratios, returns to shareholders, reinsurance facilities, the method of product distribution and whether the chairman is a smoker. All may have a say in determining what one life insurance company may charge you for life insurance (well, perhaps not the last!)

Then there's the product itself. Apart from your sex and age when it is taken up, other elements dictating the premium include the policy's duration (generally, the longer the more expensive), whether there is an investment element, and special clauses such as double indemnity in case of accidental death. Your occupation, dangerous sporting pursuits, whether you're deemed an impaired life or have other ongoing health problems will also affect the rate.

Large sums assured over long periods may require a medial examination before cover is granted. Shorter term policies usually only require the signing of a declaration after a few basic questions on the proposal form. This is appealing as most people are averse to medicals; the downside is that many miss out on having the first signs of, say, symptomless hypertension or diabetes being detected.

26 May 2005 © Moneyextra.com

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