Medical Exam Before Life Coverage

Why is there a medical exam before your life insurance becomes active? Imagine what would happen if there were not one: how many people would take out a large policy two days before their death from a fatal disease?

 

It is important to think about how an insurance company works. They agree that if a certain event happens, they will pay a certain amount of money. In return they charge a premium. In order to make the system work an insurance company needs to have a large group of people insuring similar risks. By having many people pay a little and only a few needing to receive a lot of money the company can make the whole system work.

Companies also look at this group who insure with them, what is called the pool, and split it up into smaller pools. The way the companies deal with the problem is by dividing people into groups or pools for life insurance purposes. We may know that everyone will die but we do not know when.

Even if we do not know exactly when we can make some good guesses based on other factors. For example, a man of eighty years of age is likely to die sooner than a man of twenty, so the older man will pay a higher premium. A man of twenty who loves extreme sports, or who tries to climb Everest, is more likely to die sooner than one who does not, so again he will pay a higher premium. All men of eighty and all men of twenty will be in different pools for risk purposes.

So why a medical exam? Things like weight, smoking, diabetes and many other medical conditions also influence how long you are likely to live. Note influence, it is not a certainty at all. A fifty year old man who is fit, does not smoke and has no identifiable diseases is likely to live longer than one who is 100 pounds overweight and smokes two packs a day. So those two should be in separate risk pools, and charged different premiums.

The purpose of a life insurance medical exam is to work out which risk group you belong to and from that work out how much you should be charged in premiums. If you knew that you were terminally ill but the insurance company did not then they would charge you the wrong premium.