Life insurance stands as a cornerstone of financial security, safeguarding your loved ones’ future. Navigating the path to the perfect policy can be intricate, with underwriting as the linchpin in gauging your eligibility and premiums. We will unravel the intricacies of life insurance underwriting, helping you understand what to expect during the application process.
The Application Process: Setting the Stage
Begin the journey with honesty. Expect a comprehensive questionnaire that dives into your medical history, lifestyle, and more. Honesty is key here, as providing accurate information ensures a smooth underwriting process. For instance, if you smoke but fail to disclose it, it can lead to complications when the underwriter discovers the truth resulting in delayed policies, and possibly rejection by insurers. The application and review process is handled in two parts:
- Part 1 – Medical Questionnaires
- Part 2 – The Medical Exam
Part 1: Medical Questionnaires
1. Review of Medical Records
Evaluating Your Health History
Begin the journey with honesty. Expect a comprehensive questionnaire that dives into your medical history, lifestyle, and more. Honesty is key here, as providing accurate information ensures a smooth underwriting process. For instance, if you smoke but fail to disclose it, it can lead to complications when the underwriter discovers the truth resulting in delayed policies, and possibly rejection by insurers.
2. Lifestyle and Hobbies
Gauging Risk Factors
Insurance underwriters assess lifestyle choices and hobbies to gauge potential risks. For instance, if you’re passionate about skydiving, your premium could be higher due to the increased risk of fatal accidents associated with this hobby. Similarly, your occupation may also impact your premium. Maintaining honesty and providing additional information to your agent can be beneficial, potentially leading to reduced premiums or a better health class rating, among other benefits.
3. Financial Background
Gauging Your Economic Stability
Your financial situation, including income and debt, may be assessed. If you’re applying for a substantial coverage amount, underwriters want to ensure your beneficiaries won’t face financial hardship upon your passing. For instance, if you have a lot of debt and limited income, it may impact the policy’s approval.
4. Family History
Genetics and Inheritance
Some policies require information about your family’s medical history. If you have a family history of certain hereditary diseases, it could affect your premium. For example, if cancer runs in your family, it may lead to a higher cost.
Part 2: The Medical Exam
Medical Examinations Provide Insight into Your Health
In the life insurance underwriting process, a crucial step often involves a medical examination. Proper preparation is essential. Following your application, you may be required to undergo a paramedical exam. This can be arranged at your home or a local clinic, depending on your preference. During the examination, various health metrics will be assessed, including cognitive ability tests, blood pressure, cholesterol levels, as well as blood and urine samples.
Your insurance agent will likely offer guidance on how to prepare, which may include staying well-hydrated and ensuring a good night’s rest prior to the paramedical exam. They will also provide any additional information you might need to make the process as smooth as possible such as bringing:
- Your driver’s license or valid photo ID, or a copy
- A list of prescriptions including dosage amounts
- Names of your doctors you have seen in the past (most recently, 5 years)
- Types and dates of any surgeries you have had recently
Preparing for Your Exam: One Week Before
- Maintain a Healthy Diet: Limit high-cholesterol foods, salt, sugar, and fats.
- Review medications: Avoid non-essential over-the-counter medications like antihistamines and decongestants, as they can affect blood pressure and glucose levels.
- Decrease alcohol: Steer clear of alcohol, which can have adverse effects on liver enzymes and lead to dehydration.
- Hydrate: Increase your water intake to stay well-hydrated, flushing toxins from your body that could impact your blood and urine samples. Proper hydration also makes blood draws more manageable.
Preparing For Your Exam: One Day Before
- Avoid strenuous exercises as it can impact blood pressure readings and cholesterol levels negatively.
- Ensure a good night’s sleep for improved vitals.
- Some agents may recommend fasting for 8 hours prior to the exam for blood draws.
Day of Medical Exam
- Best practice is to schedule your medical exam earlier in the day, especially if fasting
- Steer clear from caffeine
- Drink a glass of water shortly before your exam
- Dress in lightweight clothing for weigh-in and a short-sleeve shirt for the blood draw.
Once your exam is finished, the results are sent to the insurance company’s underwriting team. The underwriting process may take anywhere from a couple of days, up to a few weeks; though it is typically the latter. During this time, an underwriter examines your application, health data, and lifestyle to determine your insurance risk class. For larger policies, the underwriting process may be more detailed.
Approval or Rating
Upon completion of underwriting, you will receive your results—an approval and rate information. Based on the gathered information, the underwriter will determine your eligibility and premium. You may receive a standard rating (the norm), a substandard rating (higher risk, higher premium), or even a preferred rating (lower risk, lower premium). For example, if you’re in excellent health, you could secure a preferred rating and lower premiums.
5 stars – preferred plus (excellent health, ideal height/weight ratio, clean family history, non-smoker)
4 stars – preferred (very good health, minor health conditions, non-smoker)
3 stars – Standard Plus (good health, good height/weight ratio, good family history)
2 stars – standard (average height/weight ratio or worse, complicated family health history)
1 star – substandard (complicated family health history, recent serious health issues)
What are Life Insurance Classifications
- Excellent health
- Ideal height/weight ratio
- Clean family history
- Very good health
- Very good height/weight ratio
- Minor health conditions
- Good health
- Good height/weight ratio
- Good family history
- Typically non-smoker
- Average health
- Average height/weight ratio
- Complicated family history
- Non-smoker or Smoker
- Complicated health
- Recent serious health issues
- Below average height/weight ratio
- Complicated family history
- Non-smoker or Smoker
If you’ve been working with an experienced agent and there are no health surprises, your premiums should align with your expectations. However, there may be cases where approval is granted, but the coverage amount is adjusted due to risk factors discovered during underwriting.
Negotiating Your Policy
Options and Riders
After underwriting, you can discuss the policy options and riders that best suit your needs. Riders can provide additional coverage for specific scenarios, such as critical illness or accidental death. Be sure to inquire about these options to tailor your policy.
The underwriting process is a critical step in securing the right life insurance policy. Be transparent about your health, lifestyle, and financial situation to ensure a fair evaluation. Remember, life insurance underwriting is not about excluding individuals but determining the most accurate premium rates to protect you and your loved ones. So, when you embark on your life insurance journey, you can now face the process with confidence, knowing what to expect.