For many people, applying for life insurance is a relatively simple and administrative process. Complete a few forms, answer some health questions, and sign the dotted line. However, what happens behind the scenes is significantly more complex. Understanding how life insurers underwrite risk can help manage expectations, reduce frustration during the application process, and ensure you provide accurate disclosures that won’t jeopardise future claims.
In this article, we unpack the fundamentals of life insurance underwriting in South Africa and explain how insurers assess your application before issuing cover.
What is life insurance underwriting?
Underwriting is the process that life insurers use to assess the level of risk they are taking on when insuring an individual. Put simply, it’s how insurers determine whether to offer you cover, how much cover they are willing to provide, and at what premium. The aim of underwriting is to ensure that policyholders pay premiums that are commensurate with their risk profile while allowing insurers to maintain the financial sustainability of their risk pool. In other words, underwriting is how life insurers determine who qualifies for cover, how much they will pay, and under what terms.
The role of the underwriter
An underwriter is a risk analyst who works behind the scenes to evaluate the personal, medical, and lifestyle factors of each applicant. Their goal is to determine how likely it is that a claim will be made on the policy and how soon such a claim might occur. Based on this analysis, the underwriter will categorise the applicant into a risk class that guides premium pricing and policy conditions. The underwriter’s decision is guided by actuarial models, medical research, claims data, and underwriting guidelines provided by the insurer.
What information do underwriters consider?
During the underwriting process, insurers gather a broad range of information to assess risk. This typically includes:
- Personal details: Age, gender, marital status, occupation, and income.
- Medical history: Pre-existing conditions, history of surgeries, medications, family medical history, and any recent medical consultations.
- Lifestyle factors: Smoking status, alcohol consumption, recreational drug use, travel habits, and engagement in hazardous activities.
- Physical metrics: Height, weight, blood pressure, and cholesterol levels.
Depending on the answers provided in the initial application form, underwriters may request additional medical reports, blood tests, or specialist assessments.
Why medical exams may be required
For certain levels of cover or where red flags are raised, the insurer may request a full medical examination. These are generally carried out by a nurse or medical practitioner appointed by the insurer, at no cost to the applicant.
The exam may include:
- Blood and urine tests
- Blood pressure and cholesterol measurements
- Height and weight assessments
- ECGs or stress tests in some cases
These exams help verify the disclosures made on the application and provide a more accurate view of your health profile.
How risk is classified
Based on the information gathered, applicants are generally categorised into one of several risk categories:
- Standard rates: The applicant has no significant health or lifestyle risks and qualifies for normal premium rates.
- Loaded rates: If the applicant presents a higher-than-average risk (e.g., due to a chronic condition or smoking), they may still be offered cover but at a higher premium.
- Exclusions: The insurer may agree to provide cover but exclude specific conditions. For example, someone with a history of back surgery may be covered for all risks except claims relating to spinal conditions.
- Declined: If the risk is deemed too high, the application may be declined entirely.
It is important to note that each insurer has its own underwriting criteria, so one insurer’s decision does not necessarily reflect what another may decide.
What is a medical loading?
A medical loading refers to an increase in premium due to a health condition or elevated risk factor. For example, an individual with Type 2 diabetes may be offered cover with a 50% loading, meaning they pay 50% more than the standard rate for their level of cover. The loading is calculated based on actuarial assessments of how the condition affects life expectancy. In some cases, the insurer may agree to review the loading after a period—say, 12 or 24 months—if there is evidence of medical improvement or lifestyle change.
The importance of full disclosure
One of the most critical components of underwriting is full and honest disclosure. South African insurance law operates on the principle of uberrima fides (utmost good faith), which means that the onus is on the policyholder to disclose all material facts that could influence the insurer’s decision. Failure to disclose a medical condition, lifestyle risk, or family history—even if unintentional—can result in a declined claim later on. Always disclose known conditions, even if they are controlled or managed, and include details of recent consultations, tests, or diagnoses.
Can you appeal an underwriting decision?
Yes. If an insurer declines your application or offers cover with a high loading or exclusion, you can ask for the underwriting file to be reviewed. In some cases, submitting additional medical evidence or a letter from your treating doctor can result in a revised decision. Alternatively, you can approach a different insurer with more favourable underwriting criteria for your condition. It’s advisable to work with an independent financial advisor who has experience in navigating the underwriting landscape and can negotiate with underwriters on your behalf.
Underwriting at claim stage
While underwriting is usually conducted upfront, certain policies—especially direct-to-consumer life cover—use a model called ‘underwriting at claims stage.’ In such cases, very little information is required at application, but the insurer will investigate medical records and lifestyle details at the time of claim. This can be problematic, as undisclosed risks may only surface after the death of the policyholder, resulting in a rejected claim. For this reason, we generally recommend fully underwritten policies, as the certainty of claims being paid is significantly higher.
Understanding life insurance underwriting is key to securing appropriate and reliable cover. While the process may feel invasive or tedious, it is there to ensure that risk is fairly priced and that claims can be paid out responsibly. Transparency and accuracy during the application process are your best safeguards, and working with a qualified advisor can help you navigate any complexity with confidence.
Have a wonderful day.
Sue
