Substandard rating

The AERAS convention: for a borrower whose income stays under the set ceiling, the total cost of the insurance cannot exceed 1.4 points of the loan's effective rate, and the excess loading is picked up by a pooling mechanism funded by insurers and banks. What is being capped is the medical loading: the money value of the gap in expected mortality or morbidity between an applicant and the standard insured of the same age. It is expressed either as a percentage of the base rate, which grows with age since the rate does, or as a flat amount per unit of sum insured, which stays level; the two are not equivalent. It is permanent when the impairment is lasting, temporary when the high-risk period runs off, and a review clause lets it drop if health improves. The alternative is a condition exclusion, which leaves the premium untouched and empties the cover exactly where it is most needed. Choosing between the two decides what the insured is buying. The loading keeps insurable an applicant a single rate would turn down, without passing the extra cost on to everyone else.