After spending over a decade across the banking and insurance industry, and running an insurance education site for close to 3 years, there is one stark realization that I have come to.
That is, there is always something out there for me to learn. Be it stories or concepts, perspectives or terminology, it does seem that the more I research, the more there is to discover.
So in this sense Insurance seems to be like a hobbit. To paraphrase Tolkien:
You can learn all about there is to know about it (them) in a month, but after a hundred years, it (they) can still surprise you at a pinch.
My surprise was certainly complete when I came across the concept of Preliminary Underwriting, which set me up for yet another learning adventure. This reminds me of another Tolkien oldie:
You step onto the road, and if you don’t keep your feet, there’s no telling where you might be swept off to
I am grateful to have the assistance of Mr Raymond Tan, from IPP Financial Advisers, who served as a subject matter expert for this article.
Once you are ready, close the door behind you and let us be swept away into a new unknown.
What is Underwriting?
Before accepting the responsibility of insuring you, companies have to undergo a series of standard – and sometimes stringent – checks to determine if you are suitable to be accepted as a policyholder.
This is done with the aim to weed out people who are overly likely to claim from the policies, hence placing an additional burden on the rest of the policy holders.
A fantastic analogy would be the girl you are about to marry. Your parents might have to spend a significant portion of their lives with her as well, so they screen her for character defects. Before finally giving their nod of approval. (Some parents are more stringent than others, heh)
That my friend, is real life underwriting.
Then what is Preliminary Underwriting?
There could be a bit of confusion here with the word: Preliminary. Since underwriting is done before every policy issuance, then why the need add an extra word when the idea of “Preliminary” is already implied?
It turns out a better substitute would be: TA Underwriting. (TA, of course, is the highly technical term called Test Water)
Preliminary Underwriting (or TA Underwriting, in our parlance) is a process of enabling you to find out what are the best offerings (price or coverage) from a particular insurer – given that you have a current health condition, or even come from a family with a chequered medical history.
Do note that not every insurance company offers this service.
What are the benefits of Preliminary Underwriting?
Just the one.
Your identity will be masked at all times. Insurers will not know who you are, except that you are a person with some pre-existing conditions and they will decide what terms to offer you, given these conditions. Anonymity also implies no obligations from both parties.
This masking of identity is powerful because records of your application will not be kept, nor can they be held against you in the future. (Have you ever been declined acceptance from any Life Insurer? No.)
You will have a clear idea of what to expect from the given insurer if you apply formally for a policy, without giving up your identity.
It should be clear now why we think it should be called TA Underwriting instead.
Who should use Preliminary Underwriting?
People who have:
- Pre – existing medical conditions
- Abnormally high or low BMI (Body mass index)
- A family history of serious medical problems
Which are the insurers that provide Preliminary Underwriting?
As far as we know, Tokio Marine, NTUC Income, AIA and Manulife have this feature available. This may change in the near future.
Here’s how a sample form looks like:
Why have you not heard of it?
It increases the workload of a adviser but does not come with a promise of a purchase. This is the reason why not all insurers offer it, as highlighted earlier.
It is far easier to skip the whole process altogether and be offered products that do not need underwriting. These products provide very little cover, if any, which defeats the purpose of going to an insurer.
How has it has benefited existing clients?
Some of my clients who have very high BMI or low BMI. The insurers might load (charge extra) or decline their applications. After knowing outcome of the preliminary underwriting, some of them decide to reduce/increase their weight. After 6 months ~ 1 year, when they achieve a certain borderline/ideal BMI, they would send in their formal application. The applications were approved as standard cases.
I have a client who had very early stage breast cancer, who went through the PUW (Preliminary Underwriting). The outcome was exclusion of both breasts with some loading of premium. Client made an informed decision to take on the formal application after knowing the outcome.
Another client’s (whose parents had cancer) went through PUW, some insurers decided to load him while another insurer’s outcome was declared standard. Client went ahead and applied to that particular insurer.
In other words, it does pay to mystery shop. Especially when its free.
About Raymond, our subject matter expert
Raymond is more of a trusted friend than a mere adviser, a fact that many of his clients will attest to. He specializes in risk management, and is a consummate professional in creating both your pay cheque and play cheque for retirement. He has been with IPP Financial Advisers for the last 13 years, and created more legacies for his clients than he cares to admit.
His specific advice regarding Preliminary Underwriting:
Speak to any independent financial adviser who is willing to assist you in doing PUW, this process is time consuming and not everyone might be willing to do it. I recommend it to all my clients who are patient and willing to wait, if they have pre-existing conditions or have family history suffering from certain conditions.
Mobile: 9826 6007
www.ClearlySurely.com aims to eradicate the knowledge gap between consumers and Life Insurance. Our Vision is that one day, every Man, Woman, and Child will be properly insured.
PS. Raymond,we love the profile pic. Looking. Like. A. Bawse.