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How life insurance underwriting works
Find out how much you'll pay for coverage based on your risk profile.
During the underwriting process, insurers assess your risk level to determine whether you’re eligible for coverage — and how much you’ll pay in premiums. The higher the risk, the higher the premiums. This is similar to how a car insurance company will ask you if you have had any previous license suspensions or accidents to analyze your driving behavior and determine your rates.
To get the best possible coverage, it’s worth learning how underwriting works.
How does the underwriting process for life insurance work?
Underwriting is the process of evaluating the degree of risk an applicant presents to the insurance company. Every insurer using its own complex underwriting guidelines to determine whether they should accept or reject an application, and to calculate rates.
1. When does life insurance underwriting happen?
With most policies, you’ll have to complete a life insurance application, which asks about your medical and family health history, hobbies, occupation and driving record. This questionnaire is designed to give the insurer an idea of your risk profile and the lifestyle you lead.
If the insurer feels the application wasn’t filled out thoroughly, you’ll likely receive a call to fill in the blanks in order to move on to the next step of getting a life insurance policy — underwriting. This may involve taking a medical exam.Your insurer will assign an underwriter to your case, who will then assess all the information you’ve provided, as well as the results of your medical exam, if applicable.
2. What documents do I need?
As part of your application, the insurer will require you to submit these details:
- Personal and contact details
- Financial status
- Hobbies and habits
- Medical history
3. What medical documents do I need?
You may be asked to provide supporting documentation, such as:
- Details of medical history. This can include statements or records from your doctor about pre-existing conditions or any treatments you’ve undertaken.
- Prescriptions. You’ll need to prove information about any medication you’ve been prescribed.
- General questions about the family medical history. Insurers will specifically want to know if your parents or siblings have suffered from serious health conditions, like stroke, cancer or Type 2 diabetes.
4. Taking the medical exam
Depending on the policy you’ve chosen, you may need to take a medical exam. It’s a basic physical whereby a medical professional will record your height and weight, and request a blood and urine sample.
They’ll also ask you questions about your health and family history. These conditions pose a higher risk to the insurer, and may lead to an increase in rates:
- Heart trouble and high blood pressure
- Chest pains
- Lung disorders
- Chronic indigestion
- Diabetes type I and II
- Malignant tumors or cancer
- Kidney, bladder, liver disorders and stones
- Mental illness
How does life insurance underwriting affect my policy?
The underwriting process can determine:
- Whether you’re eligible for coverage
- The amount of coverage you can buy
- The exclusions may be applied to your policy
- How much you’ll pay for coverage
What risk factors affect my life insurance application?
Life insurance is based on calculable risk, so your insurer will look a range of factors when assessing your application. These include:
- Age and gender. The younger you are, the higher your life expectancy — and the less risky you are to insurer. Men have a lower life expectancy than women, so they tend to pay more for coverage.
- Smoking status. Smokers’ premiums are two to three times the normal rate. If you’re a smoker, you can’t qualify for any insurers’ preferred rate classes — but you may be able to once you’ve kicked the habit for at least a year.
- Lifestyle. If you spend your spare time skydiving, bungee jumping or flying planes for fun, you may be deemed a high-risk applicant and be charged higher rates.
- Occupation. People with dangerous jobs can expect to pay more expensive premiums.
- Driving record. Typically, your recent driving record must be free of major traffic violations, DUIs and DWIs to score the best premiums.
- Alcohol or substance use. A history of alcohol or drug use can drive up your rates.
- Family medical history. If your family has a history of critical health conditions, such as cancer or heart disease, 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, you may qualify for better rates.
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Do all life insurance policies require a medical exam?
No. If you don’t want to take the medical exam for whatever reason, you can apply for a policy with simplified underwriting. These are the two main options:
- Simplified issue life insurance. This policy skips the medical exam and relies on the applicant to answer questions about their medical history. Most applicants are approved, but there are a few “knockout” questions, such as if you’re in a wheelchair.
- Guaranteed acceptance life insurance. You can get a life insurance policy without taking a medical exam or having to answer any medical questions. But 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 underwriting necessary?
It comes down to the insurer’s financials. If the underwriters don’t do a good job and quote high premiums, the insurer stands to lose out on a lot of business to their competitors. Similarly, if the underwriters don’t calculate a person’s risk correctly and quote lower premiums, the insurer may lose money by covering high-risk individuals at lower rates.
Life insurance underwriting is the process that determines how risky you are in the eyes of your insurer. It has a direct effect on your premiums — young, healthy people typically get the best rates because their risk is lowest. But even if you have a history of health conditions or risky behavior, you could still find a life insurance policy to fit your needs.
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