What is life insurance underwriting?
Underwriting is a process that evaluates several factors to determine the risk associated with providing someone with insurance. It’s used by most insurance providers to determine the applicant’s eligibility for a policy and establish the appropriate premium to be paid for the policy. Underwriting may also find that the risk of providing life insurance to the applicant is more than the insurer is willing to bear.
Underwriting is needed for most life insurance policies. “Guaranteed issue” life insurance policies don’t require underwriting. However, the premium you’ll pay for this type of life insurance will likely be higher than if you applied for a life insurance policy that required underwriting.
The life insurance underwriting process
Each insurance provider has different criteria and an underwriting process depending on the type of insurance policy. Some of the information used in the underwriting process includes:
- Age – Because we’re more likely to have health events as we age, the older you are, the higher your life insurance premiums will likely be.
- Gender – Women may pay less than men for the same coverage since statistically they live longer.
- Health – Your body mass index (BMI), blood pressure, cholesterol levels or a diagnosis of certain ongoing illnesses such as diabetes can affect your premium rate or in some cases disqualify you from coverage.
- Family medical history – If your immediate family (father, mother, siblings) has had a history of illnesses such as stroke or cancer, it may affect the premium you pay.
- Smoking, nicotine/tobacco use or vaping – Statistics show that smoking, nicotine, tobacco use, or vaping can lead to exposure-related health effects which may increase your insurance premium cost.
- Alcohol or drug use – Alcohol or drug misuse is linked to several long-term health risks such as high blood pressure, stroke, heart disease, certain cancers, liver disease and cirrhosis. Consideration is given to the type of substance used, the frequency of use, the time since last use and any related health issues.
- Occupation and hobbies – If you work in dangerous conditions or participate in risky hobbies such as certain types of scuba diving or bungee jumping, your premium could be increased, or your application could be declined.
- Financial situation – The underwriter will check that the life insurance coverage amount you’ve applied for is appropriate based on the purpose for insurance, your income, assets, liabilities and your ability to afford the premiums without stressing your finances.
- Other life insurance policies – Underwriters will review if you have other life insurance policies to decide if you are eligible for all coverages.
Once the underwriter has all the necessary information, they will review your overall risk profile including your age, medical history, family medical history, occupation, habits and hobbies, etc.
Generally, the older you are and the more life insurance coverage you apply for, the more evidence you need to provide. This could include blood, urine, vitals or a paramedical exam. In some cases, depending on the amount of coverage, you may also need to provide proof of your income and net worth.
How long does underwriting take?
Depending on the policy type and the applicant’s medical history, underwriting time can vary. Often when underwriting takes longer, it is because the insurer is collecting more information to help the underwriter in making their decision. The length of time includes time spent waiting for that information to arrive.
Required documents for underwriting
As part of your life insurance application, the insurer may need:
- Personal ID including your driver’s license, passport or other government issued picture ID and your social insurance number.
- A copy of your medical records from your doctor, clinic or hospital.
- A list of current medications, personal and family health history.
- Financial statements, tax returns, details of other current life insurance policies, and a document outlining your financial goals and needs.
- Personal history information including your occupation, habits and hobbies.
- Names, date of birth (age) and relationship to the insured for your life insurance beneficiaries.
Types of underwriting outcomes
There are several possible outcomes the underwriter may provide:
- Approval at standard rates – You’ll be approved with standard premiums if you are placed in the typical or manageable rate class.
- Approved with a rating – If the underwriter decides that your coverage presents a greater than standard risk, they may offer coverage with an additional cost added, which will result in an additional premium charge over and above the standard risk.
- Declined – If the underwriter decides that the risk of providing you with coverage is more than the insurance provider is willing to undertake, your application will be declined.
- Postponement – The underwriter is unable to provide coverage at the time of your application. This could be related to health and if that improves over time, the application could be reconsidered later.