The underwriting process is how an insurance company evaluates the risk of insuring an applicant to determine their eligibility for coverage and set the appropriate premium. It’s a comprehensive review that assesses a wide range of factors to predict an individual’s life expectancy. The more risk an applicant presents, the higher their premium will be.
Key Factors in Underwriting
Underwriters consider various aspects of a person’s life to build a complete risk profile. These factors fall into several categories:
- Health and Medical History: This is a major component. Underwriters review your personal and family medical history, including any pre-existing conditions, past surgeries, and current medications. They also consider your height, weight, blood pressure, and cholesterol levels.
- Lifestyle and Habits: Your daily habits and hobbies play a large role. For instance, smoking or using tobacco will almost always result in higher premiums. Dangerous hobbies like skydiving or rock climbing can also increase your risk rating.
- Occupation: Certain professions are considered riskier than others due to higher mortality rates. A construction worker, for example, may be seen as a greater risk than an office worker.
- Financial Situation: Underwriters may review your income, assets, and debts to ensure the requested coverage amount is appropriate for your financial needs. This prevents over-insuring an individual and helps confirm they can afford the premiums.
- Driving Record: A history of multiple traffic violations, especially serious ones like a DUI, can indicate a pattern of risky behavior and may negatively impact your rating.
The Underwriting Process: Step-by-Step
The underwriting process can vary in length and intensity depending on the type of policy and the amount of coverage. A typical process includes the following steps:
- Application Submission: Everything begins when you complete a life insurance application, providing basic personal, health, and financial information. It’s important to be honest and thorough to avoid delays or, worse, having your policy denied for misrepresentation.
- Information Gathering: The underwriter will gather additional data to verify the information on your application. This may involve:
- Medical Exam: For many policies, you’ll need to undergo a free medical exam. A paramedical professional will take your height, weight, and vital signs, and collect blood and urine samples for lab testing.
- Attending Physician’s Statement (APS): If you have a specific medical condition, the underwriter may request a report from your doctor that provides a more detailed account of your health history, diagnosis, and treatment.
- Database Checks: Underwriters use various databases, like the Medical Information Bureau (MIB), to check for discrepancies or omissions in your medical history and past applications. They’ll also review your prescription history and motor vehicle report.
- Risk Classification: After reviewing all the information, the underwriter assigns you a risk classification or “health class.” This classification is a factor in determining your premium. Common classifications range from “Preferred Plus” (for the healthiest individuals with the lowest risk) to “Standard,” and then to “Substandard” or “Table Ratings” for those with higher risk factors.
- Decision and Policy Offer: Based on your risk classification, the insurance company will either approve your application and offer a policy with a specific premium, or, in some cases, deny coverage if the risk is considered too high.
Types of Underwriting
Not all policies go through the same intensive underwriting process. Some alternatives include:
- Accelerated Underwriting: This is a streamlined process that uses data from third-party sources and algorithms instead of a full medical exam. It’s often available for healthy, low-risk applicants and can lead to faster approval.
- Simplified Issue: This type of policy doesn’t require a medical exam but asks a limited number of health questions. It’s a good option for those who need coverage quickly or have minor health issues, though premiums are generally higher.
- Guaranteed Issue: With this type of policy, acceptance is guaranteed regardless of your health, as long as you meet the age requirements. These policies usually have low coverage limits and high premiums and often include a waiting period before the full death benefit is paid. They are typically for individuals who have been denied traditional coverage.’
Conclusion
While the life insurance underwriting process can feel intimidating, it’s designed to accurately assess risk, leading to a fair premium that reflects your personal circumstances. Our Study of Working Americans reveals an impressive 72% of those who have life insurance consider it “very valuable.” It’s a sentiment that rings true across all generations, income levels, and genders. The peace of mind that comes with knowing your loved ones will be financially protected makes navigating the underwriting process well worth the effort.
