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Insurance revolves health risk and payout risk assessment. This is called actuarial risk. Insurance population models that insurers depend upon have to be accurate and give a dependable picture of reality. An inaccurate actuarial model can result in an unexpected rate of insurance claims, leading to bankruptcy for the insurer and refusal of payouts on claims. For these reasons it is critical that insurers have (1) an accurate picture of each individuals' health and (2) an accurate model of how that person can be expected to fit in with the entire population's health. It is for this reason that physicals are required in order to assess actuarial risk.
The other editors are correct; when insuring an individual, the insurance company has to take all factors into account so they can stay in business. If they continually insure people with bad health or high risk, they will lose money and eventually go bankrupt as they pay out far more than they take in. The bulk of their money comes from healthy people who insure as a precaution; they pay their premiums against the possibility of an accident, not against the knowledge of it, so they don't draw on the insurance much. If a insurer provided low-cost insurance solely to sick people, they would go under in a month as they paid for all the medical claims.
This is something that I have experienced personally, as somebody that has survived a disease twice. This means that it is very difficult for me to get life insurance whereas for my wife it is very easy. Basically it is all about risk at the end of the day. An insurance company wants to make a profit, and therefore it is not going to insure the life of somebody who is about to snuff it.
It is all about money and risk. Why would an insurance company want to insure someone who is horribly unhealthy, they would lose a lot of money and in the end perhaps go bankrupt? So, they need to assess risk and have the person who is insured pay the proper premium - a higher premium. In other words, they would have to pay more money due to underlying health conditions.
Requiring a physical makes good financial sense. A company that insured anyone with no questions asked would run the risk of going bankrupt very quickly. Such a company might seem attractive to people seeking insurance, but, if it did go bankrupt, they would have put themselves at real risk by using that company.
They want to minimize their risk, which is how insurance companies make money. By insuring you, they are gambling that you will live for a long time and pay a lot of premiums. Often, in addition to a physical requirement, there is a stipulation that one doesn't use tobacco on an insurance policy.
The main reason a life insurance company would request a physical is indeed to see how healthy the person is. They don't want to ensure you if you're more likely to die, because then they'd have to pay. However, another reason for the physical is to check for pre-existing conditions you may not know about, especially ones that might kill you.
It allows the company to give a rate based on life expectancy. Ultimately, the insurance company is a business and wants (needs?) to make a profit. By evaluating a person's health, current age, and lifestyle habits, they can make a reasonable assessment of their life expectancy and determine the appropriate rate.
The life insurance company would not want to insure someone who is in terrible health. Or at least they would want to put really high premiums on that person. If the person dies right away, the company gets essentially nothing in premiums and will have to pay out large amounts in claims. So they need to make sure the person is relatively healthy.
A life insurance exam helps life insurance underwriters determine the risk of death especially at the time of buying a policy, when the company commits to paying out a large death benefit from its end. The test is paid for by the company and checks blood pressure, urine, blood specimen (for nicotine or drug abuse) and additional tests like an EKG if needed. The company has a vested interest in your health, and the healthier you are, the better chances that they will have the money to pay out in the case of unexpected death. They compute this using actuarial tables, and it's quite a science within itself. Someone who is in excellent overall health will have a lower term life insurance rate than someone who is in poor health.
Disclaimer: I work for AccuQuote and this is my personal opinion.
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