Loading is the term used to describe the increase in cost of a life insurance policy due to the perceived extra risk involved.
A loading may be applied for someone with a pre existing medical condition, a hazardous pastime or a dangerous occupation.
How it works
When the life insurance company receives your application, they assess the information it contains. On the basis of this, they decide whether they require any further information. For instance, medical details may be obtained from your doctor and a medical examination may be required. With all this information, the insurance company underwriter is then in a position to calculate if there is any increased risk of a claim being made.
People who reflect a similar degree of extra risk are grouped together. From this group, it is possible to state that the health of some will improve, some deteriorate and others remain static. Insurers know that, within this group, the extra premium charged for an individual policyholder will reflect the degree of extra risk of ill health and death that will be experienced by the group as a whole.
The terms and premium loadings imposed by insurance companies for people with any pre existing medical condition vary. It is therefore important when applying for a new life assurance policy to contact a Specialist in pre-existing medical conditions, as they are able to view the market as a whole and have the experience to know which insurance company is likely to offer the most competitive premium.
The good news is that by carefully selecting certain companies the degree of loading may be reduced or even potentially removed.
Most insurance companies do not decide on the level of loading themselves. They use specialist firms called Reinsurers who indicate the loading figure required for a policyholder dependent on their current condition, medication, age, smoking habits, etc.
So how can this result in lower loadings?
There are, in fact, only a handful of reinsurance companies. This means that several life companies will use the same reinsurer, which will in turn mean that they provide roughly the same loading. For example,
Mr Jones obtains four quotations for life cover from companies A, B, C and D. The quotations for cover provided are as follows:
- Company A £20.00 premium per month
- Company B £22.00 premium per month
- Company C £23.00 premium per month
- Company D £24.00 premium per month
As Mr Jones has lived with diabetes for the past three years, he is expecting a loading on the policy.
All four companies are asked to re-quote taking into account his medical history. Companies A, B and C use one reinsurer, Company D uses another.
The first reinsurer recommends a 150% loading which gives a total premium as follows:
- Company A £20.00 + 150% increase = £50.00 per month
- Company B £22.00 + 150% increase = £55.00 per month
- Company C £23.00 + 150% increase = £57.50 per month
The reinsurer for Company D takes a different view and recommends 100% loading.
- Company D £24.00 + 100% increase = £48.00 per month
This gives the interesting but not uncommon scenario that the cheapest original quote is no longer the cheapest final quote.
It is vital, therefore, that any adviser to a client with a medical condition should not only look for good value before loading is applied. They should also consider which reinsurer the insurance company is using and obtain quotations from companies using different reinsurers.
Finally, once you have life cover in place, do not just forget about it. We would strongly suggest that every two years another quotation should be obtained for your existing cover. The reasons for this are twofold.
Firstly, the cost of life cover is steadily falling. Secondly, if your condition has stabilised, the loadings may not be as heavy as when the policy was originally proposed. Under no circumstances, however, should an existing life policy be cancelled before you have a new contract in force.”
To view our full article on life insurance for pre existing medical conditions click here.