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Buying insurance these days is quick and easy, right? If you’re insuring your car or house, you can do it online without even speaking to anyone!
But when it comes to insuring your life, things take a little longer. That’s because of the insurance underwriting stage. An insurance underwriter steps in to work out how much you’ll have to pay for the life insurance you want—all based on information about you and your health.
So, what exactly is life insurance underwriting? Who does it? And what are they finding out about you?
What is insurance underwriting?
Insurance underwriting is the name given to the process of assessing your life insurance application. This involves finding out key details about you and is carried out by an insurance underwriter.
Life insurance companies use underwriters to look at the information gathered about you and then figure how much of a risk it would be to sell you life insurance.
For example, if you smoke, the insurance company is taking a bigger risk by insuring your life—compared with someone who does not smoke. So that means it will cost you more to buy life insurance from them.
The underwriter is responsible for calculating this cost, which is called your “premium.” You pay this premium every month or every year.
How much life insurance do you need? Find out with our free calculator!
How does the insurance underwriting process work?
Going through the life insurance application process doesn’t have to be daunting if you’re ready to provide all the information the insurance underwriter needs. This is how it works . . .
1. You’ll complete a life insurance application.
The life insurance application form will capture your personal details and get an overview of your financial situation and medical history. The insurance agent you speak to will also get details about your occupation and find out if you’re married or have children, if you smoke, and how much coverage you’re after.
Then the underwriting process begins! The life insurance company’s underwriter uses the information gathered to build your policy. The following will also happen to give them an accurate picture . . .
2. You’ll provide more details on your medical history.
The kind of information they’re after here is if you have an existing disease or health disorder, your family medical history, how much you drink, your height and weight, and if you take any medication.
3. You’ll probably take a medical exam.
Taking a medical exam is something most insurance companies will ask you to do, especially if you have health issues like diabetes or high blood pressure, for example. It will give them a better idea of what your health status is and help work out an accurate premium for you.
4. Your motor vehicle report will be reviewed.
If you’re thinking, Huh, why are they looking at my driving history when I’m looking for life insurance? Well, if you’ve racked up a few speeding tickets, traffic violations or worse, the underwriter will deem you riskier than average. The motor vehicle report will give them 3-5 years of your driving history.
5. You’ll describe your occupation and hobbies.
The life insurance company will need to know if they’re insuring someone who works in an office or someone in a riskier profession—like a skydiving instructor. When it comes to hobbies, if you’re an office worker who also skydives for the fun of it, that’s something they’ll need to know. In the end, it’s wise to tell them about any risks in your job or outside of it.
What risk factors are underwriters checking?
As we mentioned earlier, underwriters will piece together a picture of you to work out how much of a risk you are to insure. These are some of the factors they take into account:
Age: The younger you are, the less risk you pose for the insurer.
Family Medical History: Any family history of illness will increase your risk factor.
Current Health Conditions: If you’re living with any health conditions, the insurance company will take them into account.
Smoking Habits: If you’re a smoker, that’s considered a big risk and your premium will be higher.
Alcohol and Drugs: How much you consume—and if you do, how often—will also be recorded.
Weight and Body Mass Index: What sort of shape are you in when you apply? Being severely overweight comes with increased health risks, so your premium will be higher.
What is a risk classification?
Risk classification is a class given to you by the underwriter once you’ve gone through the whole application process and necessary medical assessment. It’s like the grade you’re given after an exam at school. And let’s face it, you deserve some kind of grade after all the prodding and poking!
The classification you’re assigned gives the insurance company an idea of how risky you are to insure, and they’ll use it to decide your insurance premium amount. These are the main types:
|Risk Classification(1)||What It Means||How It Affects Your Premium|
|Preferred Plus||You’re practically a superhero: in very good health, don’t smoke, have a healthy BMI, take no medications, and have an uneventful medical history.||
The premium will be close to the lowest it can get in the life insurance market.
|Preferred||You are in pretty good health with maybe a minor health issue like slightly high cholesterol or blood pressure.||
Premium will be a bit higher compared to Preferred Plus.
|Standard Plus||You’re generally healthy but may have a few minor issues which you take medication for.||
You’ll pay more for your premium compared to someone with Preferred status
|Standard||You’re in average health and take medication for one or more significant medical conditions.||
You’ll pay more compared to the Standard Plus premium.
How long does underwriting take?
The whole process from application to signing on the dotted line can take from two to eight weeks, depending on how much information the underwriter needs.
If the underwriter doesn’t need to know anything else about you and you meet the insurance company’s criteria for life insurance, you’ll get your policy and know your premium amount within a few weeks.
Preparing for the Best Life Insurance Plan You Can Get
The underwriting process is important. It gives you a premium that is the most accurate for you and your situation.
The good news is, you do have some control. If you plan ahead and keep yourself as healthy as possible, you will be able to get on the Preferred side of the risk classification—and that means lower premiums.
When you do decide to get some life insurance, we always recommend a term life insurance policy. Our friends at Zander Insurance have helped people find the best life insurance policy for over 50 years. Start the journey to the best life insurance for you today.