Things to Know about Life Insurance Underwriting

The process of determining an applicant’s insurability and premium for life insurance includes an important step called underwriting. To assess the applicant’s risk level and provide a fair premium, it entails analyzing several variables, including age, health, profession, and lifestyle. A series of steps, such as an application, a medical exam, and data analysis, may be involved in the underwriting process, which can take anything from an hour to several weeks. The underwriting processes for individual and group life insurance differ significantly, even though there are some similarities.

What is underwriting in life insurance?

An applicant is assessed by a life insurance company during the underwriting process to ascertain their suitability for coverage and the premiums they will need to pay. Several variables are taken into account during the underwriting process, including the applicant’s age, gender, occupation, past medical history, and lifestyle choices. The ultimate goal is to provide a premium that, after taking into account the policyholder’s prospective lifespan and other important factors, is most equitable for their risk profile.

What is the job of an underwriter?

In short, a life insurance underwriter is a person or organization that examines all of the information gathered about you. Life insurance rates are determined by risk, just like any other insurance rate. Underwriters review the details you provided on your application to estimate the probability that you will die within the policy term and that the insurer will be required to pay your death benefit. Every company determines who it will write policies for and whom it won’t be using proprietary underwriting guidelines. Your eligibility for coverage and rate will be established based on the classification you are assigned and additional data.

How long does underwriting take?

The underwriting and acquisition of life insurance are usually multi-step processes that take two to eight weeks to finish. If your prospective insurer has any queries or needs to wait for a response from your doctor, it might take longer than that. On the other hand, several life insurers provide same-day approval and expedited underwriting for policies without a medical examination.

Life insurance underwriting process

The rigorous process of standard life insurance underwriting involves multiple steps to evaluate an applicant’s risk and calculate their premiums. Here’s a detailed explanation of what to expect:

Life insurance application

The application process is the first step in the life insurance underwriting process, where you provide details about your financial situation, health, and personal life. These particulars include things as basic as your name, address, job, employer, net worth, height, weight, and date of birth, as well as more specific information like your exercise, drinking, and smoking habits.

Life insurance underwriters may have a negative opinion of high-risk occupations like airline piloting or pastimes like skydiving. This implies that you might have to pay more. In comparison to applicants who are healthy and do not smoke, smokers and those with chronic health conditions may also pay higher premiums. You must fill out your application completely and accurately to avoid issues when the policy is issued or a beneficiary makes a claim.

Life insurance medical exam

You might have to go through a medical exam to confirm your health status after submitting your application. This medical examination also referred to as a paramedical exam, is carried out by a certified paramedical specialist and usually consists of standard procedures like taking blood and urine samples, measuring height and weight, and checking blood pressure. By using these tests, possible health issues like drug use and common conditions like high blood sugar or cholesterol are supposed to be found. The underwriting process, which assesses the risk of insuring you based on your health condition, greatly benefits from the results of this exam.

Information analysis

The underwriter looks over your prescription history after the medical examination and contacts the Medical Information Bureau (MIB) to confirm the details you submitted regarding your medical history. The underwriter assesses your lifespan and assigns you a category based on actuarial tables and potentially even data analytics.

Insurance classification

Ultimately, your underwriter will rate your insurance based on a comprehensive analysis of all the factors. When looking for a life insurance policy, you can fit into one of five categories:

1. Preferred Plus or Preferred Elite: This indicates that you have a good height-to-weight ratio, are in excellent health, and have few or no unhealthy habits.
2. Preferred: This category is for those who meet the requirements for preferred plus or elite but whose health is not good enough for them. This could indicate that you have a mild medical condition, like elevated blood pressure or cholesterol.
3. Standard plus: You will normally still be able to purchase an insurance policy under this classification, but possible issues with your medical history or a family history of illness may arise. Compared to those in the upper categories, your life insurance premiums will probably be higher.
4. Standard: Most people fit into this category. You will probably be able to purchase insurance, just like Standard Plus, but your premiums will probably be higher.
5. Substandard: A second classification scheme known as “table rating” is involved with Substandard ratings. You will either be denied coverage or given a high-rate policy based on how well you score in that system. This is to take into consideration a complicated medical history or other factors that raise your insurance risk. Should you fall into this group, you might want to look into no-exam life insurance.

These rating categories are typically available for both smokers and nonsmokers. Although the rates for the “preferred smoker” category are usually higher than those for the “preferred non-smoker” category, a smoker may still be eligible. It is important to remember that you may be able to save money on your premium if you apply for a new policy once your health improves or ask for a re-rating at a later time (if your company permits it), depending on the reason for a high rating or health issue.