When you buy a term life insurance policy online, you may be surprised that your insurer is interested in your educational background. This may seem unusual or even invasive, but there are valid reasons why insurance providers consider this information necessary.
Pricing structures, called premium rates, are ultimately determined based on the probability and cost of a claim being made. By understanding an individual’s lifestyle and choices, insurers can estimate these potential risks better. Integral to this process is the concept of ‘underwriting’ wherein insurers use a wide array of information, including your educational background, to curate a comprehensive risk profile.
Helps in assessing associated risks: One of the key metrics insurers use is the correlation between level of education and risk factors that could impact the policyholder’s life expectancy. Many studies suggest that higher education often equates to a healthier lifestyle and longer lifespan, making an individual less risky to insure. Insurers use this information and other factors to assess the risk associated with providing coverage and determining premiums.
Rakesh Goyal, Director of Probus Insurance Broker, says, “When it comes to term life insurance policies, insurers might inquire about one’s education background for risk assessment. Education can be an indicator of lifestyle and health awareness, influencing policy decisions. This information aids insurers in better understanding and pricing the associated risks.”
Helps in negating mis-selling: Education can be a factor in assessing an individual’s ability to comprehend complex documents, including insurance policies. Insurers want to ensure that their clients have the necessary literacy and understanding to make informed decisions about their coverage.
Naval Goel, Founder and CEO of PolicyX.com, says, “Usually term insurance companies ask for educational background to ensure that the policyholder can read and comprehend the terms and conditions of the term plan purchased and cannot be fooled by the insurance agents. Additionally, higher qualification and salary together increase the eligibility for a hig sum assured term plan.”
This helps prevent misunderstandings and ensures that policyholders are fully aware of what their insurance entails, reducing the likelihood of disputes or misconceptions about the coverage they have purchased.
While education is just one factor among many considered, it helps insurers assess potential health risks and life expectancy, aiding in the actuarial calculations used to set insurance rates. Moreover, insurers don’t use the policyholder’s education level to make a binary decision about whether to provide coverage or not but rather as one of many considerations to determine the appropriate premium for the coverage provided. It is not the sole determinant of your insurance premiums. Other factors include age, health status, occupational hazards, and lifestyle choices.
Thus, the next time you apply for term life insurance and are asked about your educational background, you will understand that it’s part of the bigger picture of assessing risk – a fundamental aspect of the insurance business.