Rated term application: a 47-year-old with uncontrolled diabetes, hypertension and conflicting disclosures
Rohan Mehta, 47, applies for a 30-year level term plan with a sum assured of ₹1.5 crore, to run to his intended retirement at 77. His annual income is ₹24 lakh as a regional sales manager; his net worth is ₹60 lakh, including a flat with a ₹38 lakh mortgage; his employer provides ₹50 lakh of group term cover. He declares himself a non-smoker who quit three years ago. The medical examination records height 1.77 m, weight 98 kg (BMI 31.4), blood pressure 148/94 and 146/96 on two readings, fasting glucose 6.9 mmol/L, HbA1c 7.1% (a repeat gives 6.9%), total cholesterol 6.4 mmol/L and HDL 0.9 mmol/L. His father had a myocardial infarction at 58. The proposal answers 'No' to hypertension and diabetes. The examining doctor's note, however, records that Mr Mehta mentioned he takes 'one small tablet for BP every morning'. He travels about 15 days a month. The intermediary has already told the client that 'the cover is as good as issued'.
1. Assess the mortality risk and state the underwriting decision you would make, with the terms and the reasoning behind each rating factor.
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Risk factors and their weight
- HbA1c 7.1% and 6.9%: at or above the 6.5% diagnostic threshold, so this is established diabetes, not borderline. Recent diagnosis with suboptimal control carries a materially elevated cardiovascular and renal risk. Typical extra: +50 to +75 per mille, higher if there is proteinuria.
- Blood pressure 148/94 and 146/96 on two readings: stage 1–2 hypertension, apparently treated but not controlled. Typical extra: +25 to +50 per mille.
- BMI 31.4 (class I obesity), with central adiposity implied by the weight: +50 per mille, and it worsens the diabetes and hypertension ratings.
- Lipids: total cholesterol 6.4 with HDL 0.9 gives a ratio above 7, an adverse profile: +25 per mille.
- Family history: father's MI at 58 is later than the usual premature-CAD cut-off of 55, so it is a weak loading at most, say +0 to +25.
- Ex-smoker of three years: many tables treat abstinence of 12 months as non-smoker; others require five years or a cotinine test. Do not accept the declaration at face value - request a cotinine test and rate as smoker if positive or if the reinsurer's rule requires five years.
- Travel of 15 days a month is ordinary business travel: no loading.
Decision. Aggregate extra of roughly +150 to +200 per mille, i.e. two-and-a-half to three times standard premium, subject to the reinsurer's rules. Two better outcomes exist:
- Postpone for six months for a GP report confirming HbA1c below 7.0% and BP below 140/90 on treatment, then offer rated terms.
- Decline if the reinsurer's automatic rules exclude HbA1c at or above 7.0%, which is common.
Check facultative capacity: an impaired life at ₹1.5 crore will usually exceed the automatic binding limit, so obtain facultative terms before promising anything. The doctor's remark about BP tablets must be put to the applicant in writing for clarification before any offer is made.
2. Is ₹1.5 crore of cover financially justified? Show your reasoning and say what you would recommend if it is not.
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Human life value approach. Take income of ₹24 lakh, deduct about 25% for personal consumption, leaving roughly ₹18 lakh a year available to dependants. Over 30 years to age 77, discounted at 6%, the annuity factor is about 13.8, giving a present value of approximately ₹2.48 crore. This is the economic value of the income being insured, so ₹1.5 crore sits well inside the HLV and is not over-insurance on that test.
Needs approach. The ₹38 lakh mortgage is a hard, dated liability; add income replacement for the family and education costs. On either method, ₹1.5 crore is defensible.
Existing cover. The ₹50 lakh employer group term is not portable and terminates on leaving employment, so it should be treated as a temporary offset only. Total cover of ₹2 crore against HLV of ₹2.48 crore remains proportionate.
Where the real problem lies is affordability, not quantum. At an aggregate extra of +150 to +200 per mille, the annual premium on ₹1.5 crore is likely to be in the region of ₹75,000–₹95,000, or 31–40% of gross income. That is not sustainable alongside a ₹38 lakh mortgage, and the predictable outcome is a lapse in year two or three - which damages the customer and the persistency statistics and produces a complaint. The financial underwriter's job is to test both sufficiency and affordability.
Recommendation. Do not decline on financial grounds. Issue at a reduced sum assured of about ₹1 crore, or at ₹1.5 crore with a shorter term to age 65, so the premium falls to roughly 15–20% of income. Explain the reasoning to the client, record it on file, and revisit the cover when his income rises.
3. How should the 'tablet for BP' remark and the intermediary's assurance be handled now, and what are the consequences if the policy is issued and a claim arises in year two?
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Handle the disclosure gap before issue. The underwriter now has information that contradicts the proposal form. Write to the applicant, quote the examiner's note and ask a specific question: are you taking medication for blood pressure, what is it, since when, and who prescribes it? Obtain a signed, dated reply and attach it to the file. The same letter should ask about diabetes medication, because the HbA1c is diagnostic and the 'No' answer is unlikely to be right.
Why this matters: an insurer cannot later repudiate a claim for non-disclosure of a fact it actually knew, or ought to have known, at underwriting. The examiner's note is on the insurer's own file. Issuing without resolving the contradiction hands the beneficiary a strong argument.
The intermediary's statement. 'As good as issued' is wrong and is a conduct breach. There is no cover until the risk is accepted on the insurer's terms and the first premium is received. The intermediary has no authority to bind the insurer. Record the statement, tell the intermediary in writing to stop making it, and ensure the client is told in writing that no cover exists yet. If the client relied on the statement and stopped seeking cover elsewhere, the insurer may face an estoppel or negligence argument, so speed matters.
If issued and a claim arises in year two. The claim falls within the contestability window in most markets, so the insurer may investigate. But on the BP fact it will struggle because its own examiner recorded it - the insurer had constructive knowledge. On diabetes, if the applicant was on insulin or oral medication at proposal and answered 'No', the non-disclosure is material and the insurer has a much stronger position, subject to proving the medication history from prescription or pharmacy records. Document the underwriting file now on the assumption that a claims investigator will read it in two years.