The time to purchase life insurance has come and you’re hearing a lot of new terms specifically “Underwriting”. Now, you’re wondering what is this mysterious word and would like to know more. Well, you have come to the right place because here at InsureChance, we make things simple to understand and give you all the tools necessary to slash down the life insurance prices. So let’s start to understand what underwriting is and what’s involved in the process of it.
What is Underwriting?
Anytime you need to secure a financial loan or an insurance policy, the company will put you through a screening process knowing as underwriting. In the underwriting process, an individual who is an underwriter will look at all the data provided and may even gather more information to make a risk assessment for you. A solid underwriting process helps the insurance company lower their risk so they can stay in business. Most of the time the company has an underwriting guideline that they follow based on actuaries (math wizards that figure out the risk of having certain illness and participation in dangerous activities). They may also gather the information from their previous data or the company’s Reinsurer(financial backer if the company runs into claims paying trouble).
To make it simple just think of underwriting as an evaluation, risk assessment, interview or pre-screening process.
What Factors are Considered?
There is plenty of factors considered which will review in detail but in general, the company is focused to know your overall health, lifestyle, and background. To make things easier let’s review to see what they collect at various steps before you get a decision.
Application
When you decide on a plan the first step is to complete a life insurance application. The life insurance application will collect all your basic info such as your name, address, phone, email along with beneficiary information. You’ll also have to answer 20 to 40 health questions that have to do with finding out if you have a certain illness or if you have been hospitalized. On the application, the company will also need to know if you’re a smoker, have dangerous hobbies, have/had drug or alcohol abuse in the past and of course criminal history. In addition to that, you may have to answer about your family history of illnesses if there are any.
Paramedical Exam
Once your application is filled and signed the next step is completing your medical examination and no you’re not required to go to your doctor. A nurse will come to your home or office to do a mini-physical by checking your build, collecting your blood/urine and measuring your blood pressure. This then gets sent to the lab to check for any abnormal levels indicating illness, drug abuse or nicotine usage. I like to tell my clients the medical exam is simply for them to verify that what you stated on the application is true. Oh, and just FYI the exam is covered by the life insurance carrier so it doesn’t cost you anything, in fact, the only time you need to pay for anything is when you have your policy in hand.
Motor Vehicle Report
If you’re an avid fan of the Fast and Furious series with a few tickets this is not good news for you. Life insurance companies do care about your driving record and will pull it to see any moving violations and DUI’s you may have. If you have more than 3 moving violations or more than one DUI prepare to pay more or be turned down depending on the details. Motor vehicle report also lets the insurer know whether or not your license is suspended, a suspension will cause some trouble too.
MIB (Medical Information Bureau)
My definition would be this: MIB-where life insurance companies snitch on clients.(JK) But in all seriousness, this is an organization where insurance companies share data that they have with other insurers. So if you previously applied and disclosed that you had diabetes and then withheld that information with another company they would know. My advice is always straightforward because it will bite you know where later.
Pharmacy Report
I bet you didn’t know that every time you filled a prescription it was recorded somewhere. Well, now you know and the underwriter will request that file so they can see what you have taken in the last decade. This helps them know what kind of medical conditions you may have and how serious they are. If you think about it you can get a pretty good idea of applicants health by the prescription report.
Other
You may hear more things that underwriters need but that’s only if you’re older or have a higher risk profile. If someone older decides to get a large face amount of life insurance the company might request that as part of their medical exam they also get an EKG or even an additional test with a doctor. For large face amount plans or for people with bankruptcies occasionally the company will send out a financial questionnaire. If you had any substance abuse you will be requested to fill out a drug/alcohol use questionnaire. Same applies to any dangerous hobbies or occupations.
Decision Time (Length and Expectation)
You may be wondering how long does the underwriting process take and what can you expect at the end of it. As far as the timeline goes the average underwriting time takes anywhere from 3 to 5 weeks but can be much longer if medical records are needed and your doctor is a procrastinator. As far as getting a decision two thing are going to happen one the company approves you at a certain rate class or turns you down. Now, most people get approved so let’s see what the rate classes are and who may qualify for them.
There are 5 rate classes which are Preferred Plus, Preferred, Standard Plus, Standard, and Substandard.
Preferred Plus– Best class someone can get if they have perfect health, no family history of cancer, stroke or heart disease, clean background, no dangerous hobbies and ideal height/weight ration. Very few people qualify for this class and they tend to be young health conscious individuals mostly.
Preferred– Right below the best class, this is still something to be very happy about because it’s not easy to get this class either. This is for people that are in good health but have small well-controlled conditions like blood pressure or cholesterol. You may be very healthy but you didn’t make the cut on the built or you have used tobacco in the past.
Standard Plus– For people with controlled health ailments or slightly higher BMI with okay overall health and risk profile. In some cases, you can be super healthy but your occupation or occasional cigar habit can land you here.
Standard– You are in fair health with more than one medical condition, have some family history of cancer, stroke or heart disease and you may be overweight. Again certain high-risk occupations or hobbies can land you here even if you’re very healthy.
SubStandard– This is known as high risk and is for people with moderate to severe ailments, past hospitalizations, dangerous hobbies/occupations or crazy driving or criminal record. Most people who get substandard are expecting it since they have been turned down before with other companies. It is also important to note that this class has 10 levels known as tables and each table rating is a 25% increase in premiums. The table rating starts at 1 which is lowest to the highest surcharge of 10.
Simplified Underwriting
If you’re one of those people who doesn’t have time to go through all the steps in underwriting there is good news, you don’t have to because there are a type of life insurance with simplified underwriting. These policies skip the medical exam and don’t request medical records from your doctor but rather use electronically available information like RX database, MVR and MIB to make a decision within a few days. Beware though that these plans are more strict and are designed for people who are in good or better health. With a simplified issue life insurance plan you can typically secure up to $500,000 of life insurance by completing a 10-minute application and sometimes even get approved on the spot.
In Summary
If you read the article in its entirety then you should be an expert on underwriting now. As an additional bonus, there are some cool things you should do to improve your odds of getting a better rate with a life insurer. First, one is making sure that your agent drafts a cover letter that provides cool facts about you that can’t be put on the application it’s a game changer. Also, make sure that you are applying to the best company based on your circumstances since no one company will look at you the same. The great news is here at InsureChane, we work with over 60 top rated companies and take care of everything for you. So feel free to use one of our comparison tools to see what is the best option for you.
