Life Insurance Underwriting Explained
Life insurance underwriting is an extremely complicated process that is used by companies to determine whether or not an applicant is qualified to get insured under their terms and conditions. The underwriters use a complex set of tools called risk table and actuaries to determine if you qualify and when the process of underwriting is finished, you have an answer about your policy and how much your life insurance premiums are going to cost you every month.
When you apply for a policy, the application that goes through underwriting will include your present health conditions, past health conditions, the possibility of contracting a disease that runs in your family, how you live, your credit record, and your driving record. Life insurance underwriting departments will look at each of these factors to assign a numerical number to your application that will determine how much of a risk you are.
Underwriting departments are very important to the life insurance industry. Liberal underwriters will cost the company money and too strict underwriters will cost the company customers. The numerical scores that are assigned by the underwriting department are standard for each company and they actually provide the insurance company an objective way to determine what you will pay for life insurance coverage.
Each factor that the department will consider in your initial application is important to allowing them to make a decision on your policy. You will be required to complete an exhaustive questionnaire about your past and present health and honesty is the best policy here. You will also be required to answer questions and provide information on your ancestor’s health history so that the underwriters can see if you are susceptible to hereditary diseases or not. It will definitely add to your monthly premium. The underwriters will then look over your medical records and your premium could be affected by things found in it.
If you smoke, drink, do drugs, or work in a high risk occupation – police officer, fireman, coal miner, etc. – you will lose points on your policy and up goes your premium some more. Dangerous hobbies, like hunting and skydiving, will push up the premium as well. Do not lie on the application form because the insurance providers will catch it and they will immediately deny you coverage. If they find out that you have provided wrong or false information, then you might find yourself in trouble.
One of the most controversial aspects of life underwriting is the inspection of your credit record and rating. The lower your credit score, the higher the risk factor is! Statistics have shown the correlation between your credit score and how long you live and it is also a way for the underwriting department to determine whether or not you will pay your premiums on time.
Your driving records are used by the underwriters to determine whether or not you are a poor driver and at risk for getting into a fatal accident. The worse your driving record is, the more you will pay on your premium. Additionally, they will investigate the type of neighborhood and area you live in and base scores here on whether or not you live in a high or low crime area.
You should always be wary of life insurance companies that offer you no document policies. Even no exam coverage includes a thorough investigation into your health. They just don’t ask for a physical. Companies that have a no document policy should raise internal alarm bells. Underwriting departments need to see what your life is like in order to issue a policy and any company that doesn’t ask for some documentation is probably not legitimate. Never get upset with your underwriters. They are only doing their job based on the information you give them. They are there to protect you and the insurance company, and to make sure that you get the coverage you need.