What is Underwriting and How Does it Work?

It is very important for you to understand the underwriting process to help you avoid needless frustration. After you apply for life insurance, the company is going to look at different criteria to decide if they are going to accept your application for coverage. Several of the major factors the underwriter will review are your driving history, prescription history, family health history, usage of alcohol, height and weight and of course any prior medical issues or surgeries. If you elect to purchase a life insurance policy requiring a free medical exam all the exam results will be reviewed prior to an underwriting decision.

The underwriting process is an essential part of any insurance application. When an individual applies for insurance coverage, he or she is essentially asking the insurance company to take on the potential risk of having to pay a claim in the future.

In many cases life insurance claims can be quite high. Therefore, it is critical to the financial long-term health of the insurance company to not take on too great of a risk when taking into consideration an applicant for life insurance coverage.

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What Does the Term Underwriting Mean?

how to get approved for life insuranceIn its most basic sense, underwriting refers to the process of determining the issuing of an insurance policy. In that process, an underwriter evaluates the risk of the applicant. During this evaluation, the underwriter will decide how much coverage will be offered to the applicant, as well as how much premium the insured should pay for the particular amount of coverage.

When underwriting an applicant, an insurance underwriter will , therefore, attempt to protect the insurance company’s book of business from risks that could cause a loss. With that in mind, it is feasible that an applicant who presents too high of a risk to the insurer, may be denied coverage altogether.

Factors Considered When Underwriting A Life Insurance Policy

There are numerous factors considered when underwriting a life insurance policy. First, an underwriter will need to determine the probability of an applicant’s life lasting as long, or even longer, than the “average” life expectancy for an individual of that particular age and gender.

In this estimate of life expectancy, if the applicant were to live as long or longer than anticipated based on the mortality table, then the funds that the insured has paid into the policy in the form of premiums will typically create enough of an investment for the insurer to take on the risk.

This means that even after the insured has passed away, the total amount of premium that he or she paid into the policy over time – combined with such funds’ invested return – will be more than what the insurer will pay out in the form of a death benefit on the policy, resulting in a profit to the insurance company.

Given this, life insurance underwriters will also analyze factors that could possibly cause an applicant to pass away prior to their average life expectancy. Such factors could include a family history of certain health impairments such as cancer or stroke, as well as external factors such as working in a dangerous occupation. Although, you may choose the option of enrolling in a no medical exam life insurance policy, with a higher premium. Several carriers offer life insurance if you have pre existing conditions. Simply complete the free life insurance form on this website today to help you review various quotes.

The criteria that are analyzed by a life insurance underwriter will typically include the following:

  • Applicant’s current age (you can still qualify for life insurance for senior citizens)
  • Applicant’s gender (It should be noted that some states offer uni-sex insurance rates)
  • Height and weight of the applicant
  • Health history (in addition to family health history of the applicant’s parents and siblings)
  • The purpose of the insurance policy (estate planning, final expenses, business, or individual life insurance)
  • Applicant’s marital status
  • Applicant’s children, if any
  • The amount of life insurance already in force by the applicant, as well as any additional life insurance that the applicant intends to purchase (applicants with more life insurance than needed are generally poor risks to the insurance company)
  • Applicant’s occupation (hazardous occupations increase the risk to the insurance company)
  • Applicant’s income (income can help determine the suitability of the amount of life insurance)
  • Applicant’s smoking habits or tobacco use (smokers tend to have shorter lives, therefore making smokers a higher risk for the insurance company, thus higher premiums)
  • Use of alcohol by the applicant (excessive drinkers are also high risks to the insurance company)
  • Hobbies that the applicant engages in (some hobbies are considered hazardous, such as rock climbing or hang gliding and are considered high risks to the insurance company)
  • Amount of foreign travel that the applicant engages in (some types of foreign travel are considered risky)

All the above factors are considered to be elements of risk. Each is analyzed and factored in by the life insurance underwriters prior to an approval or rejection decision being made. Therefore, prior to applying for life insurance coverage, it is important to understand how underwriting works, as well as how different factors could affect the possibility of being accepted or rejected for coverage. Those applicants who have been rejected due to risk factors can still apply for high risk life insurance.

As you can see, there are dozens and dozens of different aspects that the insurance company is going to look at while reviewing your life insurance application. You should make sure that you have all the information necessary to get an affordable plan.

High-risk Applicants

Because there are so many different factors that the insurance company reviews with each application, there are dozens of different things that could cause you to be a high-risk applicant. If you are deemed a high-risk applicant you will be either rejected for any coverage or be forced to pay higher premiums for your policy.

There are plenty of top life insurance companies that specialize in offering coverage to high-risk applicants. These companies have experience with various types of applicants. The high-risk companies are going to offer you much better rates for your coverage than other companies that avoid high-risk applicants. It’s vital that you get the best plan to meet your needs at an affordable rate as you will be paying this premium for many years.

Getting Better Underwriting Results

The results from the underwriting are going to play a significant role in your chances of being approved for life insurance and how much you’re going to pay for that life insurance policy. There are several ways that you can get better results and ensure that you get the best rates for your life insurance coverage.

The first thing for you to do is to improve your health through a healthier diet and start a daily exercise regimen. Both can help you lose weight, lower your cholesterol, and lower your risk of having severe health complications later in life. You don’t have to spend hours in the gym every day, but getting consistent exercise, and swapping out some junk food for veggies can work wonders on your health.

The next thing that you should do is stop using tobacco. Using tobacco increases your chances of having several types of cancer drastically, which is going to reflect poorly when going through the underwriting process for your life insurance policy. If you qualify as a smoker on your life insurance application, you can expect to pay twice as much for your coverage. You’ll need to get in better shape and certainly stop smoking if you want to find the most affordable life insurance plan!

The next way that you can improve your results from the medical underwriting is to stop any dangerous hobbies that you participate in. If you are a rock climber, the insurance company is going look at you as a high-risk applicant, which means that you’re going to pay much higher rates for your plan.

Each insurance company is different, and they will all have varying underwriting policies which can drastically impact the results and rates that you may receive. Finding the right company could be the difference in being declined for life insurance or getting an affordable policy. There are dozens of different insurance companies on the market, which means that you could spend weeks looking for the perfect plan.

The best way to compare rates is to simply complete the free life quote form on this website. It researches leading carriers, so you don’t have to! It’s our mission to help you locate a quality life insurance policy at an affordable rate.

By now you must realize that tomorrow is not promised to any of us. It is better to buy life insurance five years too early rather than five minutes too late. Your loved ones deserve the security a life insurance policy provides. They deserve peace of mind and lifetime protection.

About InsuranceScored.com
About InsuranceScored.com

Susan Wright, CLU, ChFC, RHU, REBC, ADPA, CITRMS, CIPA has been in the insurance and financial field for over 27 years. Even with years of experience, she continues to create new resources for others. Everything from books to training material.

Susan received her MBA from St. Louis University and her BA from Michigan State University.

She has worked in several areas but excels in writing material for both finances and insurance. Her goal is to give professionals credibility and assist in streamlining the sales process.

She has written countless articles for a variety of websites.

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