Behind the Scenes: How Does Life Insurance Underwriting Work?
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Life insurance underwriters have a pretty morbid job: figuring out how likely you are to die at any given age.
For you, this means you’ll be asked questions about your age, health and lifestyle when you apply for life insurance. You might also need to carry out other tasks, like taking a medical exam. Here’s what you need to know about the life insurance underwriting process.
» MORE: Compare life insurance quotes
What is life insurance underwriting?
Underwriting is the process a life insurance company uses to decide whether you’re eligible for a policy and establish your premium. Typically, it’s carried out by underwriters, professionals specializing in analyzing risk. Traditional underwriting takes about four weeks and sometimes longer.
Many insurers also analyze data about you using computer algorithms to speed up the process. With the rise in instant life insurance and more insurers using algorithms for underwriting, you might be able to get a policy on the same day you apply.
Unless you’re getting guaranteed issue life insurance, you can expect some level of underwriting when you apply for a policy.
The risk factor checklist: What are underwriters digging for?
As part of the underwriting process, insurers look at these risk factors:
Age. Life insurance rates are primarily based on life expectancy, so younger people will most likely pay less for coverage.
Gender. Women almost always pay less than men of the same age and health. According to the latest data from the Centers for Disease Control and Prevention, life expectancy in the U.S. is 79.3 years for women and 73.5 years for men. Unfortunately, the industry doesn't have clear guidance around life insurance for transgender and non-binary people yet, so you might be asked to list the gender you were assigned at birth in your application.
Health history. Underwriters look at your body mass index, blood pressure and cholesterol levels, as well as any pre-existing conditions. If you can prove you’re managing your condition well, you might qualify for more coverage or better rates.
Family medical history. Your insurer might ask if you have a family history of serious health conditions like heart disease, cancer or diabetes.
Criminal history. While some insurers are OK with misdemeanors, it’s nearly impossible for convicted felons or people on probation to qualify for life insurance.
Tobacco use. Smoking is tied to health issues like respiratory and lung disease, so life insurance for smokers is typically more expensive. Insurers may also consider you a smoker if you use chewing tobacco.
Lifestyle. Participating in risky activities like skydiving, cave diving or scuba diving can raise red flags, though some companies are open to high-risk life insurance applicants.
Occupation. If you have a hazardous occupation such as crop dusting, firefighting or being a lumberjack, you’ll be considered riskier than someone with an office job.
Driving record. You might be charged higher rates if you have DUIs, DWIs, multiple speeding tickets or major traffic violations to your name.
Alcohol and drug use. If you have a history of abusing alcohol or addictive substances, you will most likely be unable to purchase coverage or will pay an extra premium.
Financials. You should be able to justify the amount of coverage you’re applying for based on your income and net worth. Insurers also want to know you can afford to pay the premiums.
Foreign travel. Traveling to war-torn or unsafe countries can make you uninsurable, though insurers will consider the reasons for your visit and the length of your stay.
Citizenship status. Some life insurance companies won’t issue policies to temporary visa holders.
Existing policies. Underwriters check existing policies to ensure you’re not applying for too much life insurance.
Military service. If you are on active duty in the armed forces, you may not be able to get coverage from some companies. Service members can usually buy life insurance through military-affiliated insurers.
Every life insurance company has its own underwriting guidelines. To get the best possible rates, shop around before applying for a policy to find companies that are more lenient about the risk factors that affect you.
» MORE: Average life insurance rates
The different types of life insurance underwriting
The underwriting process varies by policy. These are the main paths:
Full underwriting. This is the most comprehensive process, which involves a questionnaire and a medical exam. A fully underwritten policy will be the least expensive option for most people.
Accelerated underwriting. Algorithms and publicly available data help identify healthy applicants and are used to issue policies online. As a result, prices can be comparable to fully underwritten coverage. However, not all applicants qualify, and the maximum available coverage may be lower.
Simplified issue life insurance. The medical exam is bypassed, but this process requires you to fill out a questionnaire. Premiums are typically higher than a fully underwritten policy because the insurer has less information for measuring risk.
Guaranteed issue life insurance. These policies provide life insurance with no medical exam and no questions asked. Applicants are accepted, but coverage is generally expensive and capped at low amounts.
» MORE: Cheap life insurance companies
The life insurance underwriting process
This is the step-by-step process for fully underwritten or traditional policies.
Fill out a life insurance application
Expect to answer questions about your health, family medical history and habits related to smoking, drinking and exercise. If you have a medical issue, you might need to provide information about your treatment or medication.
The life insurance application will also ask for details about your finances, what you do for a living and how you spend your free time.
Take a medical exam
Some policies require a life insurance medical exam. Think of this like an annual physical, except it’s free of charge and a nurse or medical technician comes to your home or office at a time that’s convenient for you.
Along with asking questions about your health and previous injuries and illnesses, the technician will measure your height, weight, blood pressure and cholesterol levels. These results help underwriters figure out if you’re in a healthy BMI range and whether your vitals put you at risk for health issues later on.
You will likely have blood drawn, which insurers use to identify health conditions like diabetes or blood-borne illnesses. In addition, you might need to provide a urine or saliva sample to check for tobacco and drug use in some cases.
The technician will then send these tests to a lab for analysis.
Provide financial documentation
If you are applying for a large amount of coverage, the insurance company will usually require financial records such as tax returns or a balance sheet documenting your net worth.
Get an attending physician’s statement
If the underwriter still has questions after looking over the results from your medical exam, they might request an attending physician’s statement, or APS. The insurance company will request this directly from your medical provider. It can either be a summary of your health and medical history or complete records.
The details and context in the APS can help your insurer to understand any health issues better. For example, your doctor could explain the underlying cause of high blood pressure picked up in your exam. This information allows the underwriter to price your policy accurately.
The underwriter cross-checks third-party records
Cross-checking helps the underwriter confirm that everything you said in your application is accurate.
The underwriter typically pulls some or all of these records:
MIB. The MIB is an insurance industry group that stores information from past life insurance applications to prevent fraud. For example, your report might include details about medical conditions, hazardous hobbies or blips on your driving record.
Driving record. Underwriters will also request a motor vehicle report from your state. This summarizes your recent driving history, flagging any tickets, traffic citations, accidents and DUI or DWI convictions. Your insurer uses this to identify risky driving behavior, which can lower your life expectancy and drive up life insurance rates.
Prescription medication record. Underwriters focus on finding prescriptions from the past five to seven years that point to medical conditions.
Credit history. If you’re applying for a million-dollar life insurance policy or more, your insurer might check out your credit history. While the underwriter is mainly looking for bankruptcies, your credit report can indicate your ability to pay premiums on time.
The underwriter will calculate your life expectancy
To calculate your life expectancy, the underwriter consults two types of tables:
Mortality tables. These actuarial tables show the odds of dying for members of a particular population, based on age and gender.
Build tables. These tables use your BMI, calculated from your height and weight, to gauge how healthy you are and predict your life expectancy.
The higher the probability that you’ll die while the policy is active, the higher your life insurance premium will be.
Why? Life insurance is a business, and insurers want to protect their bottom line if they need to pay out your policy.
You’ll be placed into a life insurance rating category
Your underwriter will take everything they know about you and assign you to a life insurance rating class. Your selected group points to your risk level and helps insurers set your premiums.
The criteria for each risk class are similar among insurers, though the names can vary. These are the general categories, from best to worst.
Super Preferred.
Preferred Nonsmoker.
Standard Plus.
Standard Nonsmoker.
Preferred Smoker.
Standard Smoker.
Then there’s “substandard,” which is a way to define people who don’t fit the mold of an insurer’s set rating classes. Substandard applicants usually have complex health conditions, a short track record of managing conditions or a poor driving record.
If you’re considered substandard, you’ll be given a “table rating” or a flat extra premium based on your profile.
A table rating means you’ll pay a percentage more on top of the Standard Nonsmoker premium. Each table rating is an additional 25%, as shown in the table below.
Table rating | Additional percentage charged | Sample annual premium |
|---|---|---|
Standard | 0% | $250 |
Table 1 | 25% | $250 + $62.50 = $312.50 |
Table 2 | 50% | $250 + $125 = $375 |
Table 3 | 75% | $250 + $187.50 = $437.50 |
Table 4 | 100% | $250 + $250 = $500 |
Table 5 | 125% | $250 + $312.50 = $562.50 |
Table 6 | 150% | $250 + $375 = $625 |
You’ll get your life insurance rate
Finally, your life insurance company will send you a proposed policy and premium. Read through the documents carefully, and sign off on the policy if everything looks good to you.
Your coverage will go into effect on the date listed in the policy papers.
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