All insurance, including life insurance, is worked out according to risk. The
entire industry works on this. Insurers take inordinate measures, using expert
actuaries, to work out in precise detail how much risk they are exposed to in
providing insurance, and the premiums that they need to charge in order to
properly offset the costs of these risks.
One of the key elements in life insurance is life expectancy. The ability to
pay out policies for people who have died prematurely is based on the
calculation that most people will not cash in their life insurance policies
prematurely. This allows insurance companies to confidently invest most of the
total collated premiums in long-term, high-yield investments, as they will most
likely not need to use the money to pay out policies too soon.
But, as in all statistical calculations, there are exceptions. In the case of
life insurance, these are the people who are exposed to more risk than the
average person in their daily lives - due to their occupations or recreational
pursuits. The general probabilities do not apply to such people, and they
therefore are considered to be higher risk groups than most others.
Insurers take different approaches to different people with different risk
profiles. Typically, policies for people who fall into these groups are
adjusted, or individually worked out. Sometimes the premium will be loaded, so
that the people pay for their risk profiles in the form of higher premiums, in
order to guarantee that they will still be paid out as much as they need. Other
people are simply refused insurance by most companies, and have to seek
specialist insurance elsewhere - usually with companies that specialise in high
risk insurance.
These are examples of higher risk life insurance profiles:
- Dangerous occupations - this includes those in the armed forces, pilots,
oil rig workers, those who work in high-rise construction and so on.
- Risky recreational activities - these are people who participate in
things like extreme sports, that carry higher risks of death than other,
more normal sports or hobbies. Such activities include mountaineering,
parachuting and motor sports.
- Smoking - of course this has to be mentioned here. Without going into
the statistics and details, smokers are at more risk of disease and
premature death than the norm. This is not usually seen as grounds for
exclusion of life insurance, but smokers can expect to pay slightly higher
premiums.
- Previous medical history - if you have a medical history that
predisposes you to the risk of shorter life expectancy, this also places you
in a higher risk category. The type of things that are pertinent here are
gross obesity, a family history of heart disease or cancer, or having
chronically high blood pressure.
- Advanced age - obviously the insurance company needs you to pay for your
life insurance - in other words, you need to be able to pay premiums for a
good few years in order to offset the cost of the company paying out your
lump sum insurance benefit. If you are already old, say above 60 years old,
you'll either end up paying a LOT for your life insurance, or you'll require
a special dispensation in order to take out a life insurance policy.
So if you fall into any of these high-risk groups, make sure that you
properly discuss your life insurance requirement with an expert, in order to get
the right kind of cover, hopefully at an affordable price. And whatever you do,
don't lie. Don't hide the fact that you like jumping out of aeroplanes every
weekend. Because if you do, and your parachute doesn't open, your loved ones may
well find that your insurance policy is invalidated and that the insurer won't
pay them a cent.
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