Life Insurance Underwriting

Buying insurance these days is easy and quick, right? If you are insuring your house or car, you can do it online without the interference of any agents or intermediaries. But when it comes to purchasing new life insurance, you first have to be eligible. Life Insurance Underwriting is an important stage in the buying process when insurers assess your application and determine suitable pricing for your plan.

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So, before buying next life insurance policy, here is what you need to understand about life insurance underwriting: 

What is Life Insurance Underwriting? 

Underwriting is a term that is used to assess the life insurance application of a potential buyer. It describes the consideration given to life insurance applications, to decide whether a policy applied for should be issued or there are modifications to be made based on the person’s risk profile. 

In simple words, an underwriter is an individual or insurer who checks at all the collected data about the policyholder and determines if you would be a good risk for an insurer to insure. The underwriter will provide you with the classification of insurance and other details, an informed decision will be made on insuring the policyholder and the premium rate. Usually, the good your classification, the smaller amount one has to pay as their premium. 

The life insurance underwriting process helps in choosing the risks for the insurer involved in issuing the policy to the questioned person. 

Underwriters are majorly the risk managers of the company and they help the company to keep real experiences within the morality supposition used in computing the premium amount. This will help the company to offer coverage at competitive relationships, maintain equity between life assured, and offer coverage to a large group of lives. 

Types of Underwriting in Life Insurance 

Underwriters use different guidelines based on the mortality statistics that are computed by actuaries. Insurance products involve some amount of underwriting. In the case of a life insurance policy, the underwriter checks the data such as medical and health history as well as the lifestyle details such as financial ability and hobbies. Based on certain factors, there are broadly two types of underwriting in life insurance: 

  1. Financial Underwriting 

    This part helps the underwriter to ensure the amount policyholder is buying is in line with his/her family’s requirements. 

  2. Medical Underwriting 

    In this, the underwriter determines the amount of risk the policyholder has to insure by analyzing factors that may impact his/her mortality. 

Life Insurance Underwriting Process 

The important tools for underwriting involve the age proof, proposal form, questionnaire sales report, client confidential report (CCR), and income documents. Following is the life insurance underwriting process based on different underwriting tools: 

  1. Step 1 – Quality check of a life insurance application 

    • The life insurance application is first gone through a quality check to ensure the provided information is correct and complete. So, it is important to fill out your proposal form completely. 

    • A minor update or change required in an application does not generally slow the process of underwriting, except for the missing detail related to medical and health history. 

    • After this, the application goes to the official process of underwriting 

    • Each check can increase the turnaround time but it is important to receive the right premium rate one needs to pay over the policy tenure. 

  2. Step 2 – Medical Examination

    • It includes checking thoroughly at the paramedical examination results which are conducted only if needed for medical proof. 

    • This medical examination is a simple check-up with the doctor suggested by the insurer 

    • After the medical test, the results are sent to the underwriter for analysis 

    • The details used by the underwriter is of 3 types: 

      • Blood test: It provides information on potential health risks such as diabetes, blood-borne diseases, heart disease, and stroke 

      • Basic measurement: It involves regular metrics such as weight, height, and blood pressure 

      • Drug examination: It involves a urine test that informs the underwriter of the smoking, use of drugs, and alcohol consumption. 

  3. Step 3 – Motor Vehicle Report Review 

    If you are wondering, why are they checking my driving history when I am only looking for a life insurance policy? Well, if you have crossed a few speeding limits, traffic violations, the underwriter will consider you riskier than normal. The underwriter requests an MVR i.e., Motor Vehicle Report from DMV (Department of Motor Vehicles) that summarizes the driving history for last 5 to 7 years. 

  4. Step 4- Final Rating of Life Insurance Application 

    • After completing the underwriting process and checking all the medical and financial backgrounds, the policyholder is offered a life insurance policy. Based on the rejection or acceptance of the new policy tenure, your policy is then issued. 

    • The entire process takes 3 to 8 weeks 

    • Then the premium rates will be confirmed and the policy is signed. 

    While not every buyer will need a detailed medical test, underwriters may often request an inspection report or independent detail based on the financial situation and lifestyle of the buyer. The premium charges that you have to pay for your life insurance plan depend largely on this assessment that is performed based on certain factors such as medical history, age, job, lifestyle, and gender. However, you should always keep in mind that a life insurance plan should never be purchased on the basis of lower premium rates. 

What are the Risk Factors checked in Life Insurance Underwriting? 

As discussed, underwriters give you an idea that how much of a risk policyholder is to insure. There are some of the parameters they take into consideration: 

  • Age: The younger you are, the lower the risk you carry for the insurance company 

  • Medical History of a family: Any illness history of family will increase your risk factor 

  • Current health situations: If you have been diagnosed with any health conditions, the insurer will consider them

  • Smoking Habits: If you are a smoker then it is considered a big risk and then your premium amounts will be higher 

  • Drugs and Alcohol: If you consume alcohol or take drugs, then it is a quite high risk for the insurer

  • Body Mass Index and Weight: Being overweight comes with greater health risks, so your premiums will be higher 

Life Insurance Without Underwriting 

If you are thinking to buy life insurance without underwriting then, it is not a good idea because without the help of an underwriter you will not be able to determine whether or not the insurance company should decline the risk of taking on an insurance policy if the payout chances are very high. Life insurers use underwriters to check all the gathered information about the policyholder and then figure out how much of a risk it would be to sell you a life insurance policy. 

For example: If X smokes, the insurer takes a bigger risk by insuring his/her life as compared to someone who does not smoke. It means that it will cost you more to purchase life insurance from them. The underwriter is solely responsible for computing this price called a premium. The policyholder pays this premium amount each month or each year. So it is better not to buy life insurance without underwriting. 

How long Does Life Insurance Underwriting Take? 

The entire process from life insurance application to signing on the policy can take around 2 to 8 weeks, depending on how much details the underwriter requires. If the underwriter does not require to know anything else about the policyholder and he/she meet the insurer’s criteria for life insurance, you will get your policy and know the premium amount within a few weeks. 

Wrapping It Up!

The life insurance underwriting process helps insurance companies fix exact premiums depending on the life assured’s risk exposure and coverage. By planning in the future, buying life insurance early, and keeping yourself active and healthy, you can absolutely influence the process of underwriting and purchase a feature-loaded policy at lower premium prices.

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