Life insurance underwriting explained
Before we dive into the world of insurance, there's this little thing called "underwriting" that you should know about.
When you apply for life insurance, the insurer needs to figure out how much of a risk you are to them. Fair enough! They do this by taking a squiz at some personal stuff like your health, lifestyle, and what you do for a living. It's all part of the underwriting process, which is just a fancy way of saying they're assessing the risk they're taking by covering you.
So, during this process of underwriting, they'll look at things like whether you're healthy, what kind of hobbies you're into, and what you do for a crust. And don't worry, they won't be snooping around in your closet or anything, just the info they need to figure out your premium amount and any special terms and conditions that might apply to your policy.
Why is underwriting important?
Underwriting sets the record straight on what you're actually protected for and, equally important, what you're not protected for. This means when it comes to making a claim, you can have confidence and clarity.
The underwriting also helps the insurer decide if they can offer you cover, even if you have medical issues or a risky job or hobby. So, the more they know about you, the better they can sort out the right policy for you and make sure you get the right deal.
What does the underwriting process look like?
Once your fully-underwritten cover is approved, you won't have to go through the underwriting process again (unless you want to make changes to your policy). Your policy terms and conditions can't be reduced, and your policy won't be cancelled by the insurance company as long as you keep paying your premiums.
(see The Insider’s Advantage).
What you’ll be asked about
You're probably thinking, "The underwriting process is gonna snoop around in my business!". But let me set the record straight—it's not about passing judgment on you or digging up your secrets. Nope, not at all. When you're in the process of applying for life insurance, you'll typically be asked to share some important details about yourself and your medical history. Here are the types of information they may ask for:
Age, gender, weight, and height: The insurance company needs to know these basics to evaluate your overall health and calculate potential risks associated with your age and physical characteristics.
Smoking status and alcohol consumption: Your habits regarding smoking and alcohol consumption can significantly impact your health. Insurance companies use this information to assess your risk factors and determine appropriate premium rates.
Family health history: Your family's medical history can provide insights into potential hereditary health conditions that you may be at risk for. This information helps insurance companies understand your potential health risks.
Current and past health conditions and treatments: Sharing details about any existing or past health conditions, as well as treatments or surgeries you've undergone, gives the insurer a comprehensive picture of your overall health status. This information is crucial in determining your insurability and cover terms.
Occupation and hobbies: Certain occupations and hobbies pose higher risks to your health and safety. For example, if you work in a high-risk industry or engage in extreme sports or activities, the insurance company needs to consider these factors when assessing your cover.
What are the main risk factors?
When you fill out your application, the underwriters are going to take a look at every single piece of information you provide. This includes:
Remember, providing accurate and honest information is essential when applying for life insurance. It ensures that you receive appropriate cover and prevents any issues with claims processing in the future. So, be transparent and thorough when completing your application.
Head over to this blog to know what exclusions and loadings on life insurance policies are.
Approval and policy terms: What to expect based on your risk level
The insurer then takes a good look at your risk level to determine whether they want to accept your application, decline it altogether, or offer you a policy with some modified terms. These modifications can come in different forms. For instance, they might adjust your premium, exclude certain health conditions or events from your cover, or put a limit on the amount of cover you can get.
Now, the good news is that the healthier you are, along with your medical history and habits, the less likely it is for your application to be declined or come with policy exclusions. Your overall health plays a significant role in how the insurer assesses your risk.
In some cases, the insurer might ask for additional information or evidence to fully evaluate your application. Let's say you have a pre-existing medical condition. They may request results from a medical examination or a report from your doctor to get a clearer picture. And if they're trying to determine the amount of cover they're willing to offer you, they might need a financial statement or proof of your income.
It's important to remember that the insurer's evaluation is based on various factors and considerations. So, it's always a good idea to provide any requested information promptly and accurately to ensure a smooth process.
How long should you wait?
The underwriting process can take anywhere from a few days to several weeks, depending on the complexity of your circumstances and the availability of information required. Have a chat with your financial adviser who can help you complete your application and keep track of the underwriting process to ensure it’s completed as efficiently as possible.
And hey, if you’ve got any questions about underwriting or life insurance in general, feel free to reach out to us. We're here to help you find the best solution for your situation and goals.