In order to purchase a life insurance policy, you need to qualify first. Life insurance underwriting is the process the insurance carrier takes to verify your application and the potential risk of accepting you as a client to determine the appropriate premium or changes needed to your policy.
As a life insurance agent, I’m aware that certain steps are taken to underwrite a policy but even I didn’t know all of it so here is what I found out about the life insurance underwriting process.
What is part of life insurance underwriting?
Underwriters take an application and consider multiple factors(age, gender, medical history, etc) to evaluate risk so the carrier can assign a classification. One of the major factors when underwriting is getting an answer to “do you smoke”. Premiums for those who smoke are considerably higher than for a nonsmoker.
In addition to checking an applicant’s medical history and application questionnaire, other steps are taken for the underwriting process. This includes things like blood and/or urine test, medical exam, doctors’ statement, and maybe more.
Where does the underwriting process start?
The process begins after you fill out an application for life insurance. In my personal experience, the fastest application took about 15 minutes, but I’ve had it take an hour per person. Prior to filling out an application, however, you would be wise to determine the purpose of the life insurance you are getting based on your budget and then fill out the appropriate application. For standard life insurance policies (nonguaranteed issue) the underwriting process usually takes 2-8 weeks. From the application onward there are certain steps that most insurance carriers follow.
Application questionnaire
Each carrier asks for some standard information: age, height, weight, smoker, occupation, hobbies, medical conditions, and prescriptions. Each carrier has a medical history and possibly background questionnaire through these slightly differ from carrier to carrier. Most of the time bank information is required though not always.
The long and short of these questions is that the insurance company is checking if you engage in any risky behavior that would inadvertently create a death claim outside of the projected norm, also to avoid fraud. Don’t be too concerned if you do have a high-risk occupation, hobby, or smoke, most of the time all it does is increase the premium that you will face. You can somewhat offset the premium increase by choosing to pay premiums for 3, 6, or 12 months at a time.
Medical exam
Often times after completing an application most life insurance agencies train their agents to schedule the medical exam right away. This is done usually because it will be at least a few days if not a few weeks before someone can meet the applicant and do a blood draw or whatever is asked for by the carrier. In addition, they verify basic health information like the height and weight of the subject.
Carriers have 3 basic classifications they use to rate someone’s health and the exam helps them to verify if the stated information on the application is accurate or if a rate adjustment based on health is needed. Some carriers require an attending physician statement which you need to get from your doctor. Since your doctor can expand on the findings the exam produces they are the best source to get extra information if needed.
Lastly, with regards to the medical portion, is a medication check. This is done to confirm the information you may have given or forgot to list either as short, long term, or preventative reasons. Carriers also check with the Medical Information Bureau (MIB), a nonprofit group that collects health information that carriers use to verify an applicant’s health history.
MVR(Motor vehicle report)
Going to your state’s DMV an underwriter will request a motor vehicle report that is a summary of your driving history for the last 5-7 years. In the report are listed accidents, tickets, citations, points on your license, and other convictions. This is used to get an idea of how risky your driving habits are which may lead to higher premiums.
You can request a copy of your MVR at the DMV and make sure it doesn’t have any errors if you wish to do so because the DMV is required to provide a copy at your own request.
Putting it all together
Taking all this information the underwriter analyzes it to come up with your rating. Consulting a document that shows life expectancy to get a baseline. This is called an actuarial table and lists the likelihood of individuals dying at different ages.
It is further broken down by age, gender, and body mass, plus takes into account height and weight. When putting this together the underwriter can come up with a probability that you’ll die while the policy is active. The higher the number the higher the premium typically. This is why permanent policies are more expensive than a term policies. Permanent policies are intended to last your entire life making them a guaranteed payout unless you cancel the policy, or it is canceled for nonpayment.
Final classification
The last part of the life insurance underwriting process is to take all the above information and give a final classification. For the most part, there are 3 standard ratings: substandard, standard, and preferred. Many carriers have 1 or two extra options like standard plus and/or preferred plus.
Preferred plus or elite:
To get into this classification you not only have to have great health, including a great height and weight ratio, but you also have no or very minimal bad habits that could affect your health.
Preferred:
This rating basically just means you are in good health.
Standard Plus:
A little better than standard but still with some concerns, even if it’s just family history.
Standard:
The classification that most people get. It’s not the greatest rate but it’s not going to be tremendously higher than what you see listed in a company life insurance quote.
Substandard:
This rating is a bit misleading as it is also referred to as table rating which is a further classification with many levels within. Your score from the table rating will either create higher rates or be denied outright. Life insurance carriers must weigh all kinds of risks to determine if an applicant is within their risk tolerance. When someone falls into this category it means they have a medical history, driving record, or occupational or hobby risks that are very close to or outside of their company standards. If the company you apply with lists you in this category you may want to consider another carrier or perhaps go with guarantee issue options.
Something to note here is that each of these rating classifications exists for both smokers and nonsmokers. While you may be a preferred smoker, it still will be higher than a preferred nonsmoker. Some companies offer incentives to quit smoking.
If you are reading this then likely you are considering buying life insurance. It would be our pleasure to help you put together a policy that exceeds your expectations and protects you and those you love. Contact me today to get the highest quality service that you deserve.