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What is life insurance underwriting?

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When you buy a new life insurance policy, you first have to qualify. Life insurance underwriting is a critical stage in the purchasing process when insurance companies evaluate your application and determine appropriate pricing for your policy. Before you buy your next life insurance policy, this is what you need to know about life insurance underwriting.

What is life insurance underwriting?

Life insurance underwriting is a process where insurance carriers assign applicants a classification based on several factors. Underwriters consider several rate factors — such as your age, gender and medical history — to evaluate risk. For example, if you are a smoker, you will likely face higher premiums than someone who has never smoked. Your policy is priced according to your rating factors.

What is a life insurance underwriter?

Simply put, an underwriter is the person or company who looks at all the data collected about you and determines if you would be a good risk for the company to insure. This person will give you an insurance classification and, based on that classification and other data, a decision will be made on insuring you and your rate will be set. Generally, the better your classification, the less you will pay for your premium.

Life insurance rates, like all 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, which means that the insurance company would have to pay your death benefit.

The underwriter looks at everything from your age and weight to whether your hobbies are risky — skydiving, for example — and then assesses the likelihood of your death. To make their assessment, they’ll use something called an underwriting manual, which is specific to that company. This manual lists the guidelines that the company uses to determine who they will and won’t write policies for.

What is the insurance underwriting process?

The insurance underwriting process is when your insurance company assesses your insurance application and assigns your premium based on risk. The life insurance underwriting process has multiple steps and usually 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.

The application

The process starts with you filling out an application. This may take some time and thought. It includes basic health information, such as your height and weight, along with information on your habits, such as whether you smoke, how much you drink and whether you exercise regularly. It will also ask about your family history with any diseases — if you have a history of cancer in your family, for example, you’ll list it in the appropriate section.

The application may also include financial information, as well as information about what you do for a living and how you spend your free time. The insurance company is trying to discover if you are engaged in any risky behaviors. For example, if you work in the logging industry, one of the most dangerous professions in the U.S., a company may either turn down your application or increase the premium.

Medical exam and statement

The next step is a medical exam, which comes at no cost to you. A nurse or medical technician will meet you at your home, place of work or at the insurer’s office to do an exam. This will verify the initial information you put on your application, like height and weight, and will probably include a blood test and possibly a urine test to check for drug use.

All of this is to determine the state of your health. If the exam determines that you are overweight, have high blood pressure or any number of other physical ailments or potential health issues, your classification may be bumped down. Following the medical exam, the underwriter may ask you for an attending physician statement from your doctor. Your own doctor is the best person to speak about your health and can expand on the findings from the medical exam.

The final steps in the medical portion of life insurance underwriting include a prescription check, to confirm any information you’ve given about drugs that you take, either short-term or for maintenance purposes. The underwriter will also check with the Medical Information Bureau, which is a non-profit trade group that can verify or dispute medical information gathered to date.

Motor vehicle report

The underwriter will request a motor vehicle report (MVR), which is a statement available through your state’s Department of Motor Vehicles (DMV) that summarizes your driving history over the past five to seven years (the length of time varies from state to state). Your MVR will list traffic citations and tickets, as well as accidents you’ve been involved in, points on your license and DUI or DWI convictions. Your insurance provider uses this to assess risk on the road. If you have shown yourself to be an unsafe driver in the past, you could face higher premiums. Unsafe driving might put you at a greater risk of passing away and causing the insurance company to pay your death benefit, so it benefits a life insurance company to rate high-risk drivers accordingly.

If this is a concern for you, you can obtain a copy of your MVR before you apply for life insurance. Your state’s DMV is required to give you a copy at your request. If you find any errors, you’ll want to straighten them out before you apply for coverage.

Analyzing the information

Armed with all the information that’s been gathered, your underwriter will now determine your final rating. Their first step will be to consult an actuarial table. This is a document that shows life expectancy — in other words, how likely it is that you will die at a certain age.

The data on the actuarial table may be broken down by age and gender as well as body mass index (BMI) and takes into account your height/weight ratio. Using this resource, the underwriter is able to see what the probability is that you’ll pass away while the policy is active. The higher that probability, the higher your premium will likely be. This is generally why permanent life insurance policies are more expensive than term policies. Because permanent life policies, like whole life and universal life, do not expire, you will die during the policy unless you cancel your coverage or the policy lapses.

Your insurance classification

Finally, your underwriter will take everything into consideration and give you an insurance classification rating. There are five categories you can fall into, listed here from best to worst:

  • Preferred Plus or Preferred Elite: This means you’re in excellent health, have a great height/weight ratio and have minimal or no bad habits that would impact your health.
  • Preferred: This is for people who are in good health.
  • Standard Plus: You will still be able to purchase a policy, 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. Like Standard Plus, you’ll likely still be able to buy a policy with this classification, but you’ll probably have higher premiums.
  • Substandard: Substandard ratings involve a further classification system called “table rating.” Depending on how you score in that system, you will either be assigned to a policy with high rates or denied for coverage. This is to account for a complex medical history, bad driving record or other factors that make you a higher risk to insure. If you find yourself in this category, you may want to seek a no-exam life insurance option.

Generally, these rating classifications exist for both smokers and nonsmokers. A smoker may qualify for a “Preferred Smoker” category, but the rates will likely be higher than they are for the “Preferred Non-Smoker” category.

Frequently asked questions

What happens if I lie on my life insurance application?

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. Small mistakes, like your weight being off by a few pounds, are not likely to cause a denial of coverage but may result in higher premiums.

What is the best life insurance company?

The best life insurance company is different for everyone based on the type of policy you are looking for, how much coverage you need and any policy extras you might want. Understanding your needs and working with a licensed agent might help you find the right fit.

How long does the underwriting process take for life insurance?

Depending on how much information the underwriter needs and how long it takes to get it, the process can take anywhere from two to eight weeks, or sometimes longer.

What are some factors that underwriters consider when evaluating a life insurance application?

Underwriters look at your medical history, your height/weight ratio, your family’s medical history and your driving history. Basically, they will consider anything that might impact how long you are likely to live.

Written by
Lena Borrelli
Insurance Contributor
Lena Muhtadi Borrelli has several years of experience in writing for insurance domains such as allconnect, Healthline and Reviews.com. She previously worked for Morgan Stanley.
Edited by
Insurance Writer & Editor