What does underwriting in life insurance mean and how does it affect me?
Underwriting is the process of assessing the level of risk presented to the insurer in order to determine the cost of a premium for a life insurance applicant. This is similar to how a car insurance company will ask you if you have had any previous licence suspensions, accidents or major moving violations.
What types of risk factors are assessed?
An underwriting team will evaluate your:
Health
Lifestyle
Occupation
Additional factors
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How does the life insurance underwriting process work?
Underwriting is essentially the process of evaluating the degree of risk a person presents in order to either accept or reject their life insurance application.
1. When does underwriting occur?
You’ll first have to complete the application from your insurer which will detail your personal information, as well as medical history. If the insurer feels the application wasn’t filled out thoroughly, you’ll likely receive a call from an insurer to fill in the blanks in order to move on to the next step of getting a life insurance policy — underwriting.
2. What documents are generally required?
As a minimum the insurer will require details of you:
- Personal details
- Residency
- Occupation
- Financial status
- Hobbies
- Medical history
3. What types of medical documents are required?
- Details of medical history. This can include statements or record from your doctor about past conditions.
- Information of any existing diseases or health disorder. This can include statements about the nature of condition and current treatments you are on.
- General questions about the family medical history. This is done to assess any chance of suffering a hereditary disease.
What risk factors impact the premium or whether the policy is accepted?
Here are some factors that underwriters typically look at:
- A person’s age: As far as life insurance is concerned, a person’s age is an important factor. People who are in their thirties or even younger typically present lower risk and may qualify for lower premium rates.
- Smoking Status: If the applicant is a smoker, premium rates can increase by 100%
- Family medical history: If you have a long history of serious illness such as cancer or heart problems in your family, then you’ll likely be considered high risk. On the other hand, if you’re in good health and don’t have any genetic history or predisposition to serious illnesses, then your life insurance application should be accepted at standard premium rates.
- Current health conditions: If you’re in good health, you’ll be seen as a lower risk than someone who has some illness or has undergone serious surgeries in the past. Sometimes, underwriters may even refuse your life insurance application if you’re regularly ill, as the insurance company may not be willing to accept the higher risk that comes with regular illness.
- The nature of your occupation: The nature of your occupation can also have a significant impact on your life insurance premiums. If you’re in a job where you need to tackle dangerous or risky situations on a regular basis, your risk factor will be considered higher by the underwriters, which could cause your life insurance premiums to increase.
Not every person presents the same degree of risk to the insurance company
For instance, if you’re 30 years old and in good health, you’d present a significantly lower risk of suffering an early death than someone who is 60 years of age or in ill health. While there are no certainties in life and a younger person could die earlier than an older person, life insurance is based on calculable risk and that is exactly what underwriters do.
How does medical underwriting work?
When your application is assessed by an underwriter, you may be asked to complete a medical examination depending on the information you’ve provided. Your medical history from your doctor or other medical professionals cannot be obtained without your permission and any information gathered will be treated in confidence.
Some medical conditions that generally prompt an insurance underwriter to request a medical examination include:
- Heart trouble and high blood pressure
- Chest pains
- Lung disorders
- Bronchitis
- Chronic indigestion
- Diabetes type I and II
- Malignant tumors or cancer
- Kidney, bladder, liver disorders and stones
- Hepatitis
- Mental illness
- Epilepsy
Do all insurers require extensive medical exams?
Not all insurers. If you don’t want to go through a lengthy application process to buy life insurance, you may want to consider getting coverage with simplified issue life insurance or guaranteed acceptance life.
Simplified issue life insurance
Simplified issue life insurance skips the medical exam and relies on the applicant to answer questions about their medical history. Questions may ask about your current and past health, whether you’re a smoker, and if your family has a medical history with a disease or illness and so on. While this can get you insured quickly, premiums may be higher than standard life insurance policies.
Guaranteed life insurance
It really is what it says — guaranteed life insurance. This means you can get a life insurance policy without taking a medical exam or having to answer any medical questions. Because the insurer is giving you a policy without knowing anything about your past medical history, premiums will be expensive and death benefits will often be lower than a common life insurance policy.
Why is medical underwriting necessary?
If the underwriters don’t do a good job and quote very high premiums, the insurance provider stands to lose out on a lot of business to their competitors. Similarly, if the underwriters undermine a person’s risk and quote lower premiums, the insurance company stands to lose a great deal of money by covering high-risk individuals at lower rates.
Underwriting is not only an important process for the person who wants to buy life insurance, but it’s also a vital process for the insurance company.
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