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How does life insurance underwriting work?

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If you’re like many people then life insurance is a significant factor in your financial and future planning. It can protect family members and loved ones, keep your beneficiaries from being burdened by your debt, and even – if you have a permanent life insurance policy instead of a term policy – provide income while you’re still alive.

If you’ve already applied for or gotten a life insurance policy then you went through the underwriting process. The underwriting process may sound mysterious, but it’s actually just the way that your chosen insurer learns more about you and your health to determine whether or not you’re a good risk.

If you’re applying for a policy now, or intend to do so in the future, it’s a good idea to understand this process and the role you play in it. Managing your application process properly can result in a speedier approval and lower rates. 

What is insurance underwriting

Insurance underwriting happens once you’ve filled out an initial application for life insurance. It’s a multi-step process designed to determine how likely it is that you will die during the period when the policy is in force. Basically, once you’ve filed your application it’s sent to an underwriter whose job is to determine how high of a risk you are.

Your insurer doesn’t want you to die because they will then have to pay a death benefit to your beneficiaries which will cost the company money. So they’ll be looking at factors such as your health, your family’s health history and if you have high-risk hobbies or a potentially dangerous job that might make you more likely to pass away.

What factors influence underwriting in life insurance?

Here are some of the factors that your underwriter is most interested in:

  • Age and gender: The younger you are, the more likely you’ll be to get a favorable rate. Since women tend to live longer than men, their rates will be slightly lower also.
  • Health: Factors considered include if you have chronic or recurring illnesses, anything from diabetes to depression, as well as your general state of health, including your weight, blood pressure and whether you are a smoker or heavy drinker.
  • Prescription medicine use: This will indicate chronic conditions that may impact your rate.
  • Your family’s health: If cancer or another genetically-determined disease runs in your family, your risk assessment will be higher.
  • Your job: Some jobs are more dangerous than others. You’ll score better here if you’re an accountant than you would, say, if you were a lumberjack.
  • Your hobbies: Potentially risky endeavors – such as sky diving or scuba diving – may count against you.
  • Driving record: A safe driver is more likely to have a long life than is a reckless one.
  • Criminal record: If you’ve been convicted of a crime, it’s considered possible that you tend to embrace more risky behaviors.

How does the underwriting process work?

Although all underwriting serves the same purpose, the process may be slightly different for each insurer. Every life insurance company has an underwriting manual that explains in detail what the underwriter is required to do and what they need to find out.

So how does life insurance underwriting work?

Application review

The first thing to happen is that the underwriter reviews your application. He or she ensures that you’ve filled it out completely and legibly, with no unanswered questions. If there is any uncertainty, there will be a phone conversation to fill in the gaps.

Be completely honest on your app. No fudging weight numbers or “forgetting” to mention that you’re a smoker. It might seem like a good idea at the time, but the underwriter will find out the truth later on in the process, and you may be looking at higher premium rates or a denied application because you twisted the truth.

Paramedical exam

Next, the insurer will send a medical technician to do an exam. This can happen at your home or place of work, at your convenience. There’s no charge for the exam and you will have a chance to review the results or use them for another application.

The examiner will be looking at your height/weight ratio, your blood pressure and any easily identifiable health issues. You may also be required to have a blood or urine test to look for illicit drug use. The results of this exam will be added to your file by the underwriter.

Physician’s statement

A physician’s statement from your primary care doctor augments the information that was learned during the paramedical exam. The underwriter will order one if there are outstanding questions from your application or the exam.

Your physician can advocate for you in this statement. For example, if you are overweight, but you’ve been working hard for the past year to lose weight, your physician can say so, and this should favorably impress the underwriter. Or if you quit smoking two years ago, the underwriter will see that you’re serious about improving your health overall.

MIB check

The Medical Information Bureau, or MIB, is a professional group that works with insurers to share medical information across the board. Your underwriter wants to know if you’ve been applying for life insurance with other companies and, if so, whether you were turned down. This can raise a red flag to indicate potential fraud.

The underwriter can also check that the information you gave on the application matches what you’ve said on past apps, helping to fill in any inconsistencies or omissions. 

Prescription review

A review of your prescriptions, past and present, helps the underwriter to fill in your health picture further and gain a better understanding of any chronic conditions or past illnesses. This is another point at which the underwriter can compare prescription data with your application to be sure it’s complete.

Motor vehicle report

Motor vehicle reports, or MVRs, are available from the DMV in your state. They show any past traffic citations, driving convictions, points on your license or accidents dating back roughly five years (or more).

Why is this important? The underwriter is trying to get a sense of your risk-aversion. If you’re prone to speeding or have a history of DUI, you’re more likely to be killed in a car accident, thus making you a riskier person to insure and impacting your premium levels if you are approved. 

Actuarial tables

An actuarial table, also known as a mortality table, determines the probability that you will die at any given age, depending on your current age and gender. The underwriter consults it in the hope of finding out that your potential date of death is far in the future.

Another source of information is called a build table. This spreadsheet-based document looks at your BMI (body mass index), which is an indication of your height and weight, to help determine your general health. 

Credit system

This is when the underwriter looks back over all the information collected, with special attention given to your physician’s statement and prescriptions, in the hopes of finding evidence that your final rating should be higher than it might appear at first. This is where you benefit if you’ve been taking steps to improve your health. 

Following this, you’re given a final classification, usually in the following form, from best to worst: preferred select or preferred plus, standard plus, standard, preferred smoker and standard smoker. There are variations on these rankings, but the higher you rank, the more likely the insurer will be to approve your application and give you favorable rates.

High-risk applicants and underwriting

If you are assigned to one of the lower categories, you’re considered a high-risk applicant. This means the insurer isn’t as sure that you’re going to outlive the policy, which is what they want. The lower your ranking, the higher your premium payments are going to be to make up for this fact. You may also have your application denied.

If that happens, don’t despair. There are insurers available who specialize in high-risk applicants. They may charge a little more, but they are more likely to say “yes” to your application.

The takeaway

The underwriting process helps determine if you’re a good candidate for life insurance.

  • Underwriting looks at your health, your hobbies and more to see if you’re likely to live a long life
  • Insurers offer low premiums to those who are at low risk of dying while their policy is in force
  • High-risk individuals can get policies from companies that focus on insuring those with more risk

What is underwriting? This multi-step process helps an insurance company understand the risks that would be involved in selling life insurance to an applicant. From the application to the physician’s statement, information will be gathered on the applicant’s health, family history of disease, job and hobbies, driving abilities and more to determine your classification, premiums and whether or not your life insurance application will be approved.

Finally, the underwriter consults actuarial tables to determine the applicant’s likely age of death, and thus determines if the company will approve the application. Those who score highly during the process are more likely to receive preferential rates.

Mary Van Keuren

After 30 years as a writer and editor in academia, Mary now writes full-time for the insurance and finance industries. Her work has appeared on Reviews.com, TheSimpleDollar.com and Bankrate.com, as well as other consumer-focused websites.

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