What Is Underwriting And How Does it Work?

When you apply for life insurance, the company is going to look at dozens of different factors to decide if they are going to accept your application for coverage. Before they will approve your application, they are going to require that you take a medical exam and they are going to ask you dozens of different questions about various areas of your life.

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 some cases – such as with life insurance – such claims can be quite high. Therefore, it is important that the insurance company not take on too great of a risk when considering an applicant for coverage.

What Does The Term Underwriting Mean?

In its most basic sense, underwriting refers to the process of issuing insurance. In this process, an insurance underwriter will evaluate the risk and the potential exposure of a potential insured. During this evaluation, the underwriter will decide how much coverage the applicant should receive, 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 this in mind, it is possible that if an applicant for coverage presents too high of a risk to the insurer, he or she may be denied coverage altogether.

Factors To Consider When Underwriting A Life Insurance Policy

There are numerous factors that are 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. Some policies require you to undergo a medical exam, while you may choose the option of enrolling in a no medical exam life insurance policy, with a higher premium. Maybe you want to know more about life insurance for someone with pre existing conditions. Let us help you today.

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, 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)
  • 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 of 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 your application, there are dozens and dozens of different things that could cause you to be a high-risk applicant. High-risk applicants are either going to be rejected for coverage or be forced to pay higher premiums for their policy.

There are plenty of top life insurance companies that specialize in working with high-risk applicants. These companies have experience with various kinds of applicants. Those companies are going to give you much better rates for your coverage than other companies are going to. It’s vital that you get the best plan to meet your needs at an affordable rate.

Getting Better Results From The Underwriting

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 that you should do is improve your health through a healthy diet and getting regular exercise. Both of these can help you shed any extra 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, as well as help keep some money in your pocket.

The next thing that you should do is eliminate any tobacco that you currently use. Using tobacco drastically increases your chances of having several types of cancer, which is going to reflect poorly when going through the underwriting for the life insurance policy. If you’re listed as a smoker on your life insurance application, you can expect to pay twice as much for your coverage versus what a non-smoker is going to pay. If you want to get the most affordable life insurance, you’ll need to kick the bad habits once and for all.

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

Each insurance company is different, and all of them are going to have varying underwriting policies which can drastically impact the results that you get. You could receive different rates depending on which company that you choose. Finding the right company could be the difference in being declined for life insurance or getting an affordable policy. There are dozens and 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 from dozens of companies is to work with one of our independent insurance agents. Unlike a traditional insurance agent, our agents work with dozens of highly rated companies across the nation. We can bring you all of the best insurance rates directly to you. No hassle.

If you have any questions about underwriting or getting the best plan for you, please contact one of our agents today. We would be happy to answer those questions and ensure that you’re getting the best plan to meet your needs. It’s our mission to connect you with a quality life insurance policy at an affordable rate.

Because you never know what’s going to happen tomorrow, you shouldn’t wait any longer to get the life insurance protection that your family deserves. Not having life insurance is one of the worst mistakes that you could make for your loved ones. If something tragic were to happen to you, your family would be left with a massive amount of debts and final expenses. Let us help you obtain a final expense policy today.

About InsuranceScored.com
About InsuranceScored.com

Susan Wright holds a BA from Michigan State University and an MBA from St. Louis University. Having over 20 years of working experience in the insurance and financial services industry, she has trained more than 10,000 financial services representatives. Susan has had licenses in real estate, insurance, and NASD Securities, and she has earned nine industry professional designations, including CLU, ChFC, RHU, REBC, CSA, CLTC, CCFC, CSS, and ADPA. Read more about her on Google+

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