Insurance policies have high initial acquisition costs that include commission, acquisition of medical evidence, and processing charges. These costs are usually distributed over the first years of premium payments. If someone cannot afford their premiums, it can lead to an early cancellation or policy lapsation and the costs may not be fully recouped. High lapse rates can also cause financial losses for insurers. Financial underwriting should ensure that the cover applied for makes sense from a financial perspective and that the premium can realistically be paid by the client in the long term.

Policies with a single premium have no lapse risk, therefore it makes sense to look and see if the sum at risk equals the sum insured minus the premium.