Life Insurance Underwriting

MDRT IN 26 WEEKS IN COVID-19 PERIOD

Second Lesson:

Life 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 life insurance, the underwriter looks at data like your health and medical history as well as lifestyle information like your hobbies and driving ability.

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. 

Read on to learn more about:

·         The underwriting manual : An underwriting manual will state things like what service a carrier’s underwriters should use for ordering an attending physician statement online, when they require a prescription history report, how height and weight correlate to health classifications, and more.

·         Step 1: application quality check: It’s not uncommon for applications to be accidentally incomplete. The carrier is looking to make sure that all of the information is accurate and completely filled out. Fortunately, unless the missing information is related to medical history, most changes that need to be made to an application won’t slow down the underwriting process.

·         Step 2: paramedical exam: The medical exam is like a checkup with your doctor, except it’s free to you. You’ll have to go to a lab where a medical technician will perform the exam. The tech can also come to your home or work.

o   Basic measurements: Height, weight, blood pressure – the boring things that you get a report on at a typical physical. Your height-to-weight ratio plays a big role in how you’ll be classified and, ultimately, what you’ll pay for your life insurance policy. High blood pressure, which becomes a particular concern as you get older, is also required for setting your rates.

o   Blood test: You can get a lot of information on potentially risky health concerns with a simple blood test. Heart disease, stroke, diabetes, blood-borne illnesses, and more can all be found out with a few vials of blood.

o   Drug test: A urine test for a full drug panel will alert the carrier to the use of drugs like amphetamines, cocaine, barbiturates, and more. Generally speaking, drug use makes you riskier to insure and raises your premiums (unless it’s marijuana, which is in a legal, social, and insurance grey area at the moment).

·         Step 3: attending physician statement :  An APS is a summary of your medical history from your doctor’s point of view. It provides the status of each condition your doctor is treating and information about the condition such as how long you’ve been treating it, how long symptoms have been present, and your prognosis.

·         Step 4: Medical Information Bureau check: It’s not a bad thing if you’ve applied for life insurance with different carriers in the past, but the MIB will let carriers see what sort of information you’ve been disclosing on some applications that you may have accidentally left off others. Tested positive for drug use on a previous test but failed to disclose it on your current application? They’ll find out.

·         Step 5: prescription check: The underwriter will check all the medication prescribed to you over the past five to seven years. As with the paramedical exam and APS, the prescription check will confirm the information in your application: the prescriptions you say you’re on or if you’ve omitted any medication up to this point.

·         Step 6: motor vehicle report: If you have a tendency to speed, drink and drive, or engage in other dangerous driving habits, you’re riskier, and your rates will be higher than someone who’s not.

·         Step 7: actuarial tables: Underwriters use a number of different actuarial tables to determine what risk you pose to the insurer and how much the insurer needs to charge to offset that risk.

• Mortality table: This table shows the mortality probability for a given population, usually based on age and gender and assuming all other things being equal. Think of it as a baseline for when, statistically speaking, you’re most likely to die.
• Build table: This table takes your body mass index (BMI) based on your height and weight and translates it into information that’s relevant to setting your insurance classification. A poor build can automatically set your classification to Standard, meaning you’ll pay more for your life insurance policy than someone with a Preferred classification.

·         Step 8: credit system: The APS and prescription check will let an underwriter know what you’re doing to keep health problems from getting worse, which can be a boost to both your health and your wallet.

·         Step 9: your final rating: Once underwriting is complete, you’re now the proud owner of a life insurance policy. The whole process can take anywhere from three to eight weeks, and relying on outside sources – like a doctor’s office for an APS – can add time. All that’s left is to confirm the premium rate, sign the policy to put it in force, and your family is protected.

·         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.

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.