Life Insurance Underwriting

What Is Life Insurance Underwriting?

When you apply for a life insurance policy, insurance companies evaluate the risk factors based on your health and lifestyle to determine your eligibility, coverage, and premium rates. This review process is called life insurance underwriting. Based on the information provided on your application and additional procedures like a medical exam, health questionnaire, or database checks (like prescription details and medical information), insurers decide your eligible coverage. Assessing risk is important for the insurer to ensure fair coverage and pricing.

How Does the Life Insurance Underwriting Process Work?

The process for life insurance underwriting begins after your application. Here’s a look at what happens at each stage and what insurers look for:

Step 1: Application Review

You fill out the life insurance application form with your personal, financial, and health details. Insurers check accuracy of information and immediate concerns, if any.

Step 2: Health Questionnaire

You provide details about your medical history, medications, ongoing treatments, and lifestyle. Insurers identify if there are any conditions like diabetes or obesity; and whether you smoke or consume alcohol.

Step 3: Database & Records Checks

Insurers double-check the details you provided through medical records, prescriptions, or driving records. They check for information that is misstated or omitted. To ensure the accuracy of information, some insurers cross-verify the details on your life insurance application using third-party databases like Medical Information Bureau (MIB) or Attending Physician Statement (APS).

Step 4: Medical Exam (If Required)

A professional visits you and collects your blood and urine samples. The reports include details of your vitals and major conditions like cholesterol, blood pressure, nicotine or drug use, and other health markers.

Step 5: Underwriter Review

The underwriter reviews all data and classifies you into a risk category or health classification. They also check if additional records are needed.

After these steps, insurers notify you if the coverage is approved or declined. If approved, you receive the final quote with coverage and premium details. If you’re offered a rated policy, it means you need to pay higher premiums due to a complex health situation. In case your application is denied, seek clarity on the reason for denial and reapply after a few months or try a different insurer.

What Factors Do Underwriters Consider?

Underwriters consider personal factors, medical history, lifestyle risk and financial and occupational factors to determine your life expectancy and financial risk. Some of the factors impacting your life insurance underwriting results include:

• Age: Young applicants in their 20s and 30s have higher chances to qualify for better premium rates due to lower health risks associated with younger ages.
• Gender: In comparison to men, premiums for women are generally lower due to longer life expectancy.
• Health history and medications: Pre-existing conditions such as diabetes, high blood pressure, or high cholesterol, may impact your risk factor. Higher risks lead to higher premiums.
• Family medical background: Hereditary conditions can impact your overall health. Some insurers may use your family medical background to identify potential conditions that may impact risk.
• Tobacco, alcohol, and recreational drug use: Your lifestyle habits like smoking or consumption of alcohol and drugs could be a red flag for insurers. People who smoke can still get life insurance, but typically at much higher rates than non-smokers.
• Occupation and lifestyle risks: Your premiums and coverage can also be impacted if you frequently engage in high-risk activities.
• Driving history: Unsafe driving behaviors can mark you in a high-risk category.

Your premiums may also vary based on the policy type. Term life insurance usually has a lower premium than permanent life insurance because it doesn’t accumulate cash value.

Life Insurance Underwriting Rate Classes Explained

Based on your profile, insurers classify you in an underwriting risk category or rate class. The classification determines your chances of approval, how much coverage you qualify for, and primarily the cost of your premiums. Though the exact underwriting rate class may vary across insurers, here is a general idea:

• Preferred Plus (Super Preferred): This categorization often applies to people in excellent health without any medical condition who don’t smoke, drink alcohol, and have a clean driving record. You can get the lowest possible premiums and higher policy options.
• Preferred: Classification applies to minor health issues that are well-managed with healthy and good lifestyle habits. Very low premiums and multiple policy options to choose from.
• Standard Plus: Often covers people with overall decent health and lifestyle profile with minor health conditions that are controllable. The risk factor is slightly better than average risk, and the premium rates are moderate.
• Standard: Average health with common conditions like controlled high blood pressure or elevated cholesterol. 
• Substandard (Rated): This classification leads to higher premiums due to increased risk. People with significant health conditions and risky lifestyle habits like smoking, tobacco use, participation in high-risk activities, or alarming medical history are classified in this category.
• Table Rating (Table A–J or 1–10): These ratings are typically offered to people with complex health issues who are too risky to be insured. An additional percentage is added to the base premium; each “table” rating increases the mortality risk incrementally by 25% in most cases.

Types of Life Insurance Underwriting

All insurers don't follow the same underwriting process. If there’s a risk factor, the process could be more involved through a detailed medical test, while others may instead rely on medical databases. Here are some common life insurance underwriting methods: 

• Full Underwriting: This is a traditional process that may require applicants to undergo lab tests and medical exams. It can be time-consuming but beneficial for those with excellent health, as positive test results may help you qualify for the best possible rates at high coverage levels.
• Simplified Issue Underwriting: Instead of a medical exam, insurers use a short questionnaire to evaluate risk. Simplified issue can be a suitable option for people with minor health issues, and may offer faster approval. However, coverage amounts could be lower and premiums could be higher than they might be with fully-underwritten policies.
• Guaranteed Issue Underwriting: With guaranteed issue you get a ‘guaranteed’ coverage without a medical exam or health questions. The approval is automatic, but it comes with higher premiums than simplified life insurance and a smaller coverage amount. It can be a good choice for people with medical conditions that may make it difficult to qualify for other life insurance policy types.
• Accelerated Underwriting: Accelerated underwriting involves answering health questions on the application, which the insurer verifies with medical records. You can use platforms like Ethos to simplify your application process and get instant coverage without any medical exam. Just answer a few health-related questions that are verified through your health history, prescriptions, and other records. You skip the lab test, but there may be follow-up questions asked to confirm the details.
• Financial Underwriting: Financial underwriting means insurers review your financial position to ensure that the requested coverage amount matches your ability to pay premiums. They typically review your annual income, net worth, assets, liabilities, existing policies, job profile, and business details for the self-employed. Financial underwriting is helpful in preventing fraud, avoiding financial misuse, and ensuring fair coverage for everyone.

What Happens After Underwriting Is Complete?

Based on the review through the underwriting process, insurers make a decision on your application. Here’s what happens in all scenarios:

If You’re Approved

If your application is approved, you’ll receive the approval from the insurer with your policy details, including the premium payment schedule and coverage start date. Pay your first premium to activate your coverage.

Once approved, life insurance policies typically include a 2-year contestability period. During this period, the insurer can review and deny claims in case of misrepresentation or undisclosed information.

If You’re Offered a “Rated” Policy

A ‘rated’ policy indicates your application is approved but at a higher premium cost. This happens when the insurer identifies a high-risk factor in your profile, which could be a health factor like hypertension or high cholesterol; lifestyle factors like tobacco use; risky driving behavior based on records; or if you work in a high-risk occupation. 

If You’re Denied

High risk factors can result in higher premiums or even rejection. If the reason for denial is your health concerns, you may be able to reapply later.

Can You Reapply or Request Reconsideration?

If your insurance application declines, or you’re offered a rated policy with a higher premium pricing than you expected, it doesn’t mean these are the final options you have. You may still consider reapplying or request a reconsideration.

• You can try applying with another insurance company to compare quotes. 
• If you're going through major health issues, you may wait until your health improves and reapply later. 
• You can also consider another policy type. For instance, if it’s difficult to qualify for a full underwriting, you may opt for no-medical-exam policies like simplified issue or guaranteed, which stick to medical data or skip lab tests completely. 

Remember, the life insurance underwriting process and guidelines differ across insurers, and it’s never permanent.

How to Improve Your Chances During Underwriting

The underwriting process is a major deciding factor that impacts your life insurance’s coverage and premium. Thus, being proactive can help. Here’s what you can do:

• Try applying as early as possible when you’re young to unlock lower premiums. 
• Be transparent and disclose all details accurately and honestly, including health and lifestyle details like whether you smoke or consume alcohol.
• If you have a chronic condition like diabetes, high blood pressure, or high cholesterol, try managing them properly with regular check-ups, medication, and healthy lifestyle habits. 
• Smokers usually pay more for coverage, so avoid nicotine at least for 12 months before the application. 
• If a medical exam is needed, fast as instructed beforehand, stay hydrated, get a good night’s sleep, and avoid consuming caffeine or alcohol.
• If the insurer asks for any details during the underwriting process, be prompt in your response and gather medical records beforehand to avoid delays.