Everything you need to know about underwriting in life insurance


When it boils down to it, a life insurance policy is a contract. Because of this, life insurance is a heavily regulated area.

So what does the contract say? Essentially, the policy sets out the responsibility of the life insurance company and the customer (you). It’s a two-way promise that in return for your premiums being paid, the insurer will pay out an agreed sum to help cover you financially should you, or your loved ones, need assistance if certain event(s) should occur.

How does life insurance work?

When premiums are paid by policyholders, they are put into a ‘risk-sharing’ pool. This is in accordance with APRA regulations and in formal terms, is called a statutory fund. The pool is then used to pay claims.

In addition to any claims that need to be paid, the pool is also used to cover the insurer’s costs.

By maintaining this balance within this pool, claim costs can be kept within expected limits and premiums can be kept affordable. This benefits customers as a whole.

What is the underwriting process?

The underwriting process is used to determine how much an individual will pay for insurances. This includes life insurance, income protection and others.

During the process, the insurer assesses whether the customer is a good fit - looking at conditions or pricing that may need to be added to accommodate medical and lifestyle information. This may mean, standard premium rates are applied, higher rates may be required, some conditions may be excluded, or the cover may be denied due to an unacceptable high risk.

Essentially speaking, the underwriting process determines whether your level of risk falls within a particular risk-sharing pool and how any extra risk, whether it’s medical, occupational or financial, may be handled. It makes sure that the cost of the cover is proportionate to the risk presented.

What’s my role in the underwriting process?

The main factors that may affect a person’s risk include age, gender and personal medical history. Occupation, family history, whether you smoke, and your lifestyle are also important factors that are taken into account.

People with similar risk pay similar premium rates. For those people who are higher risk, insurers may request higher premiums for cover or exclude certain risks from the policy offered, or may offer a different or modified form of insurance. Insurers can also decline to accept a policy application.

To assess a person’s risk, life insurance companies rely on information from a number of sources. This may include:

  • An application form
  • A personal statement, sometimes called a proposal form. This usuallyincludes information covering residency, occupation, financial status, hobbies or pastimes and medical history among other things.
  • The medical history usually covers diseases or disorders that you have or that may run in the family as this may mean you’re at an inherent risk of developing a hereditary disease.

The underwriter's role is to look at the best information available and to arrive at a conclusion that is fair, both to the individual and to the pool of funds to cover the risks.

Why do AAMI Life need an underwriting process?

In simple terms, underwriting can help control risk.

Life insurance is voluntary so insurers always want to make sure that the premiums paid are proportionate to the risk associated with the individual. For example, if people who are involved in hazardous sports are paying the same premiums as people who don’t, that wouldn’t be fair, as the former are at a higher risk. It also may make taking out cover financially impossible for people who are lower risk, as they would be disproportionately covering those who are in a higher risk category, and thereby paying higher premiums than necessary.

Taking out life insurance

Now that you know how the underwriting process works, it hopefully gives you peace of mind as to how your premiums are calculated and your cover is designed.

So now, it may be time to take out life insurance. Get a quick quote online or contact AAMI Life Insurance on 1300 407 322 to get the process started.

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AAMI Life Insurance products, other than in some circumstances the Redundancy Benefit, is provided by TAL Life Limited ABN 70 050 109 450 AFSL 237848 (TAL Life) which is part of the TAL Dai-ichi Life Australia Pty Limited ABN 97 150 070 483 group of companies (TAL). TAL is not part of the Suncorp Group. TAL uses the AAMI brand under licence from the Suncorp Group. Any advice on this page in connection with the Life products is general in nature and is provided by Platform Ventures Pty Ltd ABN 35 626 745 177 AFS Representative Number 001266101 (PV). PV is part of the Suncorp Group and an authorised representative of TAL Direct Pty Limited ABN 39 084 666 017 AFSL 243260 (TAL Direct). General advice does not take into account your individual needs, objectives or financial situation. Before you decide to buy or to continue to hold a Life Products you must read the relevant Product Disclosure Statement. The Target Market Determination (TMD) for the product is available on our website.