Premiums for most insurance products are tailored to the individual’s circumstances and risk. Each risk premium being calculated using a number of factors which when combined together are specific to the individual being insured.
With mortgage protection insurance the premium is calculated based on a group of customers with common risk factors and needs. This reduces the need for individual premium calculation and hence reduces unit sale cost. Important when selling a secondary product.
The Group may be all customers of a particular distributor such as a Finance House or retailer distributor. All customers are treated in the same way with the same premium rate regardless where they live, their age, and income and credit history. It is indicative of this approach that many insurers do not exclude dangerous hobbies.
In order to sustain the above approach insurers insist on certain eligibility criteria being met by all customers. The common areas of eligibility are items such as,
- Aged over 18 and under 65 years of age when the mortgage/credit arrangement it due to complete.
- Living in the UK.
- In paid employment for at least 16 hours per week and have been so for at lest 6 months.
- Not aware on impending unemployment.