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What is Life Insurance Underwriting Process?

What is Life Insurance Underwriting Process?

Life insurance underwriting

Applying for a life insurance policy is easy, especially when applied for online, it may take only a few minutes. Once you have given your basic details and provided necessary information, your insurance application is then sent for the underwriting process. This process determines if you can get coverage, how much coverage can be approved for you, and at what cost. The underwriter, the person who evaluates your application, works on behalf of or for the life insurance company to look at your health and financial information to figure out if you are eligible to receive the rate you were originally quoted.

Underwriters use underwriting guidelines based on mortality statistics that are calculated by actuaries. All insurance products involve some degree of underwriting. For life insurance, the underwriter looks at data like your health and medical history as well as lifestyle information like your hobbies and financial ability.

Two Parts of Life Insurance Underwriting

There are broadly two parts to underwriting:

1) Financial Underwriting

It helps the underwriter to make sure the amount you’re purchasing is in line with your family’s and your needs.

2) Medical Underwriting

Here, the underwriters determine how much of a risk you are to insure by evaluating factors that may affect your mortality.

What is Underwriting in Life Insurance?

Underwriting is a term used to describe the consideration given to a life insurance application, to determine whether a policy applied for should be issued or there are changes to be made depending on the person’s risk profile.

The process helps in the selection of risks for the insurance company involved in issuance of an insurance policy to the person in question.

Read more about the eligibility to buy a life insurance policy.

Process of Underwriting | Underwriting in Life Insurance

Underwriters are the risk managers of the organization. They help the organization to keep actual experience within the mortality assumption used in calculating the premium rates, which helps the company to offer insurance cover at competitive terms, maintain equity between policyholders, and offer cover to as wide a group of lives as possible.

Life Insurance Underwriting Process

The most important underwriting tools include the Proposal Form, Age Proof, Income Documents, Questionnaires Sales Report and a Client Confidential Report (CCR). These tools are used to implement the following process:

Step 1: Application Quality Check

Your application is first gone through to make sure the information provided is complete and correct. Therefore, it is important you fill your proposal form carefully and completely. Unless the missing information is related to your medical history, a minor change required in an application does not typically slow down the underwriting process. After this, your application goes into the official underwriting process. Each of the following checks can increase the turnaround time, but it is worth it to get you the right premium price you will need to pay over the policy term.

Step2: Medical Examination

This step involves looking thoroughly at the results of your paramedical exam, conducted only if required for health proof. This medical test is a simple checkup with the doctor recommended by the insurance company. After the medical examination, the results are sent to the underwriter for evaluation. The information used by the underwriter is mainly of three types – basic measurements, your blood test and drug test. Basic measurements include regular metrics like height, weight, blood pressure. Blood test can get a lot of information on potential health risks such as heart disease, stroke, diabetes, and blood-borne illnesses, among others. Finally, a urine test for a full drug panel will alert the underwriter to the use of drugs, smoking and alcohol consumption.

Step 3: Final Application Rating

Once the underwriting process is complete and all your medical and financial background have been checked, you are either made a counter offer suggesting the changes basis you policy evaluation, or you are proudly offered the life insurance policy. Depending upon your acceptance or rejection of the new policy term, your policy is then issued. The whole process can take anywhere between three to eight weeks. After this, all that’s left to be done is to confirm the premium rate, sign the policy to put it in force to keep your family protected.

While not every applicant will require a detailed medical examination, underwriters may sometimes request an inspection report, or independent information on the applicant's financial situation and lifestyle. The premium that you have to pay for your life insurance policy depends majorly on this evaluation done basis factors like your age, your medical history, gender, lifestyle, and job. However, you must remember that a life insurance policy should not be bought on the basis of lower premiums. While term insurance plans are usually known to have the lowest premiums, you can choose an insurance provider that offers a relatively higher implied investment return, a high death benefit and relatively lower surrender charges, along with a high claim settlement ratio.

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