Life insurance underwriting is the behind-the-scenes process that plays a pivotal role in shaping your policy. This methodical evaluation delves into your personal and health details, considering factors like age, medical history, occupation and lifestyle habits. The goal? To assess the level of risk you pose to the insurer and determine the terms of your coverage, including your premium. The complexity of this process means it can be swift for some or extend over weeks for others, possibly requiring medical exams or detailed questionnaires. With Bankrate’s expertise, we’ll guide you through the intricacies of life insurance underwriting, shedding light on what it means for you and how it distinguishes individual from group policies, empowering you to navigate this essential step with confidence.

What is underwriting in life insurance?

Underwriting in life insurance is a detailed process that life insurance companies use to assess an applicant’s eligibility for coverage and determine the appropriate premium. This involves two key approaches: medical underwriting and financial underwriting. Medical underwriting examines an individual’s health and lifestyle factors, including age, medical history, habits and occupation, to evaluate the risk they present to the insurer. On the other hand, financial underwriting focuses on ensuring that the coverage amount aligns with the applicant’s financial needs and circumstances. Insurers may review income, assets, liabilities and other financial indicators, along with the applicant’s credit history and existing insurance coverage.

The objective is to determine that the policy’s face amount is justified, preventing being over-insured and underlining the policy’s role as a safety net rather than a financial windfall. Together, these underwriting facets work to create a fair, balanced assessment of the applicant, guiding the insurer in offering a policy that reflects the true risk and financial context of the individual.

What does an underwriter do?

Simply put, a life insurance underwriter is a person or company that looks at all the data collected about you. Like all insurance rates, life insurance rates are based on risk. Underwriters examine the information you’ve listed on your application to determine how likely it is that you will pass away during the policy period, and the insurer will have to pay your death benefit. Each company has proprietary underwriting guidelines to determine who they will and won’t write policies for. Based on the classification you’re assigned and other data, your eligibility for coverage and rate will be set.

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Artificial intelligence has changed how some insurers view the life insurance underwriting process. In February 2024, Nationwide announced that it would partner with AI software DigitalOwl to help expedite the underwriting process. If the numbers are any indicator, other major life insurance companies won’t be far behind. While AI may help to speed along the process in some cases, there are still a couple of hurdles it needs to overcome before it becomes more of an industry standard.

How long does underwriting take?

Obtaining life insurance and going through the underwriting process is typically a multi-step process that takes two to eight weeks to complete. It may be longer than that if your potential insurer has questions or if they need to wait on a response from your doctor. However, there are several life insurers that offer accelerated underwriting for no-medical-exam policies, and some providers even offer same-day approval.

Life insurance underwriting process

Standard life insurance underwriting is a meticulous process where several stages are involved to assess an applicant’s risk and determine their premiums. Here’s a step-by-step breakdown of what you can expect:

Life insurance application

The journey to securing life insurance begins with completing an application that delves into the nuances of your personal, health and financial landscape. This encompasses basic information such as your name, address, occupation, employer, net worth, physical attributes and lifestyle choices, including habits related to smoking, drinking and physical activity.

Engaging in activities or professions deemed hazardous, such as first responders, construction workers or active military, could influence your life insurance underwriting outcomes. As a way to manage these elevated risks, insurers might assign a “flat extra” charge to your policy, a concept we’ll explore further in this article. This means that those with high-risk hobbies (skydiving, for example) or occupations might see an increase in their premium rates. Similarly, individuals who smoke or have chronic health conditions are often subject to higher premiums in comparison to their healthy, non-smoking counterparts. It’s imperative to be forthcoming and accurate when completing your life insurance application to avert any potential issues during the policy’s issuance or when a claim is made by a beneficiary.

Life insurance medical exam

Following your application submission, a medical examination is often the next step to confirm your health details. Conveniently arranged at a location of your choice, such as your home or office, this examination is facilitated by a certified paramedical professional and encompasses routine assessments like measuring your height and weight, checking your blood pressure and collecting blood and urine samples—all at no cost to you. These evaluations play a pivotal role in identifying any underlying health issues, including the use of drugs and common conditions like high cholesterol or glucose levels, crucially informing the underwriting process. This process is instrumental in determining the risk factor associated with insuring you based on your current health status, without any financial burden or involvement from your health insurance provider.

Information analysis

In the subsequent phase of underwriting, a comprehensive analysis of various data points occurs. This includes scrutinizing your prescription history and consulting the Medical Information Bureau (MIB) for any discrepancies in your medical history. Additionally, results from the medical exam, your medical records, motor vehicle records, credit history and even a background check for any criminal record may be evaluated.

It’s important to note that not every record is examined for every applicant, and the scope of the information reviewed can vary significantly from one insurer to another. This meticulous process involves the use of life expectancy (actuarial) tables and potentially advanced data analytics techniques to assess your projected lifespan and determine the risk category that best aligns with your profile.

Insurance classification

During the final stages of the underwriting process, the underwriter will assess all gathered information and assign you an insurance classification rating, which serves as an indicator of your insurability based on health and lifestyle factors. The “standard” classification acts as the baseline, representing the average risk profile for males and females. Your classification can improve if you present lower health and lifestyle risks, but it can also be adjusted to higher risk categories, such as substandard, or involve flat extras for higher-than-average risks.

Insurance classification categories include:

  • Preferred plus or preferred elite: This means you’re in excellent health, have a great height-to-weight ratio and have minimal or no bad habits that would impact your health.
  • Preferred: This is for people who are in good health but not good enough to qualify for preferred plus or elite. This could mean you have a minor health issue, such as high blood pressure or high cholesterol.
  • Standard plus: With this classification, you’re still eligible for coverage, but there may be some concerns about your medical record or a family history of disease. Your life insurance costs will likely be higher than if you were in one of the upper categories.
  • Standard: This is the category that most people fall into and the baseline for policy rates.
  • Substandard: Substandard ratings involve a further classification system called “table rating.” Depending on how you score in that system, you will be required to pay a certain percentage on top of the standard price for coverage. This is to account for a complex medical history or other factors that make you a higher risk to insure. If you find yourself in this category, you may want to look into no-exam life insurance options.

A flat extra can be assigned to any risk classification if you don’t necessarily easily fit into one of the categories above. This is an additional charge applied to your life insurance premium to account for higher risks associated with certain conditions or activities. For example, you may be incredibly healthy, earning you a Preferred Plus rate class, but also deep-sea SCUBA dive as a hobby. The insurer may decide to assign you Preferred Plus with a flat extra fee to cover the increased risk of insuring you. Flat extras can be temporary or permanent, depending on the underwriter’s evaluation and the insurer’s guidelines. They can also be removed after reevaluation should your circumstances change.

In general, the stated rating classifications exist for both smokers and nonsmokers. A smoker may qualify for a “preferred smoker” category, but the rates will typically be higher than they are for the “preferred non-smoker” category. It is important to note that depending on the health issue or reasoning for a high rating, asking for a reevaluation at a later date (if your company allows it) or applying for a new policy once you are in better health could potentially save you money on your premium.

What is the difference between group and individual life insurance underwriting?

When exploring life insurance options, you’ll encounter two common types: individual and group policies, each with distinct underwriting processes.

Individual life insurance policies are tailored to you personally, requiring a thorough underwriting process. This typically involves a medical exam and a review of your medical history to assess your health risks. Your premiums are calculated based on these factors, meaning your health status and lifestyle directly influence the cost of your policy.

Group life insurance, commonly offered as part of employment benefits, simplifies the process by eliminating individual underwriting for their base policy option. This means all eligible group members receive coverage without needing to disclose their health history or undergo medical examinations. As a result, premiums are standardized across the group, regardless of individual health statuses. This approach provides a streamlined way to secure life insurance, especially for those who might face higher premiums or denial in individual underwriting due to their health background. If you want more coverage than the base policy, which is typically only 1-2 times your salary, you may need to answer some medical questions to determine approval.

Important note: If your application is approved with a higher-than-expected rate class, it’s a good idea to check with other life insurance companies. Each company has its own underwriting parameters, and there can be significant differences in how they price specific medical conditions.

Frequently asked questions

    • Some factors that underwriters consider when evaluating a life insurance application are lifestyle, age, gender, medical history and occupation. Risky lifestyle choices, such as skydiving or cliff jumping, could increase your risk profile and the cost of life insurance. Your medical history, including height and weight, prescribed medications, diagnoses and history of surgeries, also determine your risk. Your occupation factors in, too, as those who work risky jobs may have a greater chance of passing away than those who work other less-risky jobs (i.e., clerical or administrative positions). Basically, life insurers will consider any factors that might impact how long you are likely to live.
    • The best life insurance company is different for everyone. Before searching for a life insurance company, determine your coverage needs, including desired optional benefits (aka riders). Once you have your coverage needs figured out, consider what is most important to you in a life insurance company. It could be its claims process, financial strength, policy offerings such as term or whole life, or customer satisfaction. Understanding your needs and working with a licensed agent or financial advisor might help you find the right fit.
    • If you knowingly lie on your application to get lower premiums, that is life insurance fraud. You could be denied coverage, fined or even face jail time. Additionally, your fraud may be reported to the Medical Information Bureau, which would then alert other companies of your fraud if you apply for coverage in the future. If your beneficiaries file a claim during the two-year contestability period and the insurance company discovers misrepresentations, the claim may be denied or reduced. Small unintentional mistakes, like your weight being off by a few pounds, are not considered fraud and are not likely to cause a denial of coverage but may result in higher premiums.
    • You might be wondering if underwriting is an unavoidable step. While many life insurance policies do require underwriting to assess risk and determine premiums, there’s an exception: guaranteed issue life insurance products.

      Guaranteed issue life insurance offers a pathway to obtain coverage without the standard underwriting life insurance process. This means no medical exams or detailed health questionnaires are necessary. These policies are particularly beneficial for individuals who might have difficulty securing traditional life insurance due to health issues or age. However, it’s important to note that the convenience of bypassing underwriting comes with trade-offs. Notably, these policies typically feature higher premiums for lower coverage amounts and may include graded death benefits, where the full death benefit isn’t available until a certain period has passed.