What is life insurance underwriting?

An older couple sitting down at the table to discuss their finances with a professional. — Dean Mitchell/Getty Images

Planning your estate is a complex process. Getting life insurance is one step to that process, but it involves more than simply choosing an insurer and signing up. When you apply for insurance coverage, you go through underwriting. The underwriting process can be simple or take months with the goal of determining whether you are insurable with the company. This time is also when premiums are set based on your specific conditions. Understanding what the underwriting process entails is an important aspect of shopping for life insurance because every company is different and these differences can impact both your rates and eligibility. Bankrate’s guide will help outline what to expect from the underwriting process and how it can impact your application.

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 and assessed risk level.

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 your overall risk level would be suitable for the company to insure. The underwriter will give you an insurance classification and, based on that classification and other data, your eligibility for coverage and rate will be set. Generally, the better your classification, the less you will pay for your premium.

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, 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, each company has proprietary underwriting guidelines to determine who they will and won’t write policies for.

How long is the insurance underwriting process?

Obtaining life insurance and going through the underwriting process generally 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. However, there are several life insurers that offer accelerated underwriting for no-medical exam policies, and some providers even offer same-day approval.

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. Many applications have questions about your COVID-19 history. Although COVID should not impact your eligibility, it may impact rates if you have long-term effects of the virus.

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. This can also happen if you take part in risky activities, such as paragliding, skydiving or racing cars.

Medical exam and statement

The next step is a medical exam, which comes at no cost to you. Keep in mind that this step would not apply for guaranteed issue life insurance, which does not have health qualifications. Additionally, there may be other no-medical exam policies.

If you do have to complete a medical exam as part of your application, you will either go to a lab to complete the exam, or have a nurse or medical technician come to your home or workplace. This will verify the initial information you put on your application, like height and weight, take your vitals (pulse and blood pressure) and will probably include a blood test and 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 according to your body mass index, have high blood pressure or any number of other physical ailments or potential health issues, your classification may be bumped down or could cause you to be denied coverage. Following the medical exam, the underwriter may ask you for an attending physician statement from your doctor. Your 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.

Analyzing the information

Armed with all the information that’s been gathered, your insurer’s underwriter will now determine your final rating. Historically, their first step will be to consult an actuarial table. This is a document that shows life expectancy, or how likely you are to pass 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-to-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 (whole) life insurance policies are more expensive than term policies, since they last for the duration of the policyholder’s life, as long as premiums are paid.

Keep in mind that many large life insurance companies now utilize data analytics through machine learning and artificial intelligence to expedite the underwriting process instead of reviewing actuarial tables.

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 for a life insurance policy, listed here from best to worst:

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: 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 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 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 re-rating 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.

Frequently asked questions

- 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 unintentional mistakes, like your weight being off by a few pounds, are not considered fraud and not likely to cause a denial of coverage but may result in higher premiums.
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- The best life insurance company is different for everyone. Before searching for a life insurance company, determine your coverage needs, including optional benefits, such as riders. Once you have your coverage needs figured out, consider what is most important in a life insurance company. It could be its claims process, financial strength, policy offerings or customer satisfaction. Understanding your needs and working with a licensed agent or financial advisor might help you find the right fit.
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- How long the underwriting process takes for life insurance depends on your application answers, your health, occupation and lifestyle. The more information the underwriter needs to determine a rate, the longer it can take. Expect the underwriting process to take between two and eight weeks for policies requiring a medical exam, or even longer for more complicated cases. The life insurance company should offer you temporary coverage that will be in effect until a decision is made on your life insurance application.
  
  There are also insurers who offer accelerated underwriting for no-medical exam policies, which have quick or same-day approval.
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- Some factors that underwriters consider when evaluating a life insurance application are lifestyle, age, gender, medical history and occupation. Risky lifestyle choices, like skydiving or cliff jumping, could increase your risk profile and cost of life insurance. Your medical history, such as height and weight, medications, diagnoses and surgeries, also determine your risk. Your occupation also factors in, as those who work risky jobs have a greater chance of dying than those who work other jobs, like clerical or administrative work. Basically, life insurers will consider any factors that might impact how long you are likely to live.
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- Life insurers will likely ask you about your history with COVID-19 during the application process. While a history with the virus itself should not directly impact your eligibility, long-term effects of the virus, such as shortness of breath, may factor into your premium.
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