Life Insurance Underwriting (Terms Explained)

Before a life insurance company commits to paying you a large sum if you pass away, they’ll need to ask you several questions to determine the conditions of your policy. This is where life insurance underwriting comes into play.

But what are insurance underwriters?

Insurance underwriters play a huge role in deciding how much life insurance costs. This guide will cover all the information you need to know about life insurance underwriting and how it can affect your policy. 

What is life insurance underwriting?

What is underwriting in life insurance? The life insurance underwriting is the process of determining your eligibility and annual rates when you apply for a policy. It’s the first step you’ll encounter on your journey to buying life insurance.

If you’ve made the decision to secure your family’s long-term financial future by purchasing a life insurance policy, you may be wondering about all the procedures the insurance underwriting process entails. 

No matter what type of insurance policy you apply for, term, whole vs. universal life insurance, the underwriter will assess your application. Generally, the underwriter’s job is to uncover any red flags that stand in the way of your application’s approval. 

For example, the underwriting process looks for things in your health or lifestyle that will have a negative effect on your policy. As you will find out, your life insurance policy won’t be decided by your terms. 

You may wonder why insurance companies won’t offer policies to anyone, regardless of lifestyle. The truth is insurance companies don’t have infinite resources, and certain fiduciary responsibilities prevent insurers from offering policies to high-risk individuals. However, the good news is you are likely to receive an affordable life insurance policy if you’re a non-smoker.

What are some important underwriting factors?

All forms of insurance must first undergo underwriting to determine your risk and eligibility.

You may be surprised when you see the comparison of life insurance rates by age and gender. Here are the underwriting factors that will directly affect your life insurance premium:

• Age. Life insurance premiums are much lower for younger adults. However, you may require less coverage if you’re older and have fewer obligations. 
• Citizenship. Green Card and temporary visa holders often won’t qualify for life insurance. 
• Coverage Amount. If you need a very high death benefit, the underwriter will make sure you’re not purchasing more coverage than what you need. 
• Criminal History. You may not be able to get life insurance for felons. 
• Driving Record. Your driving record will determine if you’re a safe driver or a risk to the insurance company. 
• Drug Use. Using recreational drugs like cannabis won’t disqualify you from a life insurance policy, but using hard drugs will. 
• Existing Insurance. If you already have an insurance policy, the underwriter will ensure you don’t purchase too much coverage. 
• Foreign Travel. Traveling to unsafe countries can make you uninsurable, especially if these trips are frequent. (For more information, read our “Life Insurance for Foreign Nationals“).
• Gender. Females tend to live much longer than men, on average. Therefore, your gender will play a huge role in determining your premium. 
• Health History. Your health will serve as the most important factor in the life insurance underwriting process. You may still qualify for life insurance with medical conditions depending on what they are. 
• Hobbies. Certain hobbies like skydiving and paragliding will increase your rates since these activities are considered to be dangerous. 
• Net Worth & Income. The amount of coverage you purchase must cover the financial burden you’ll leave behind once you die. 
• Insurable Interest. The person buying life insurance must prove they would suffer financially if they died, which is usually not an issue since most people aren’t buying life insurance for someone else. 
• Military Service. Military members with dangerous assignments may not be eligible for life insurance coverage. 
• Occupation. Some occupations are considered “unsafe.” For example, police officers could pay higher premiums for life insurance or be denied. 
• Past Applications. If you’ve been denied a life insurance policy and apply again, your underwriter may sense a red flag. 
• Tobacco Use. Smokers will always pay a higher premium, especially if they have a chronic health condition because of their smoking. It may be hard to get life insurance if you smoke e-cigarettes.

Read more:

• Do life insurance companies test for drugs?
• What to Do if Your Life Insurance Claim Is Denied

Each company weighs these variables differently, so it’s important to compare multiple life insurance quotes to see where you can find the best policy.

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What is a life insurance underwriter?

A life insurance underwriter is a person or company that reviews your application and determines if your risk level would be acceptable for a policy. The job of the insurance underwriter is to determine the risk factor of your application by asking a series of lifestyle and health-related questions.

It’s important to note here that some life insurance companies utilize people to perform this process. Other companies hire independent agencies for a more thorough review of life insurance applications. 

Life insurance companies set their rates based on risk, and underwriters will use the information on your application to find out how likely you are to pass away during the term of your policy, meaning they will have to pay out the death benefit to your beneficiary. 

Ultimately, the underwriter will assign an insurance classification to your application. The classification they assign you will determine your eligibility for coverage and your annual rates. Typically, the healthier you are, the better your classification and the lower your life insurance rates. Life insurance for high-risk individuals can be very expensive. 

The underwriter will comb through every aspect of your lifestyle, assessing factors such as your age, health, and hobbies like skydiving to determine the likelihood of your future death. 

To finish their assessment, they will review an underwriting manual. An underwriting manual is unique to every life insurance company and sets guidelines for who the company will and won’t cover with a policy.

Now that you’ve learned what is an underwriter in insurance, let’s find out how long the process lasts. 

How long is the life insurance underwriting process?

The length of the underwriting life insurance process can vary depending on a variety of factors. Usually, the process takes two to eight weeks to finish. 

If you’re in perfect health and live a risk-free life according to the insurance company’s standards, you should have your application approved in a few weeks. On the other hand, if you’re a smoker or have a debilitating illness, the insurance company may take longer to determine your eligibility. 

With that said, if you have to wait long to hear back about your application, this isn’t necessarily a bad thing. Most application holdups happen when applicants wait to hear from their doctors. If the underwriter needs more information from you, they’ll typically contact you via email or phone. 

If your application is denied, your underwriter will also inform you and state the reason behind the decision. If your application was denied based on inaccurate information, you have the right to an appeal. But lying on your life insurance application can get you in trouble.

To give you more insight, let’s explore each phase of the life insurance underwriting process. 

The Application Stage

The underwriting process starts when you fill out an application. Naturally, it takes about an hour to fully complete a life insurance application. 

The life insurance application will ask basic questions, such as:

• Your height and weight
• Lifestyle habits
• Whether you smoke and/or drink
• Your exercising habits
• Family history with diseases

The application will also delve into informal questions about your income, personal hobbies, and your profession. The underwriter will use your answers to determine if you are engaged in any risky behaviors. 

For example, let’s say that you work in the logging industry, one of the most dangerous professions in the United States. If you apply for life insurance, an agency may deny your application outright or increase your rates.

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

If you work in a dangerous industry, there is hope you can receive an affordable life insurance policy. Many companies partner with insurance companies and will give you the opportunity to enroll automatically for a policy. 

The Medical Exam

The next step of the life insurance underwriting process is the medical exam. Depending on the insurance provider, you may also be required to complete a blood and urine test to check for drug use. 

Here’s a general outline and what to expect when you need a medical exam for life insurance.

The purpose of this exam is to verify the information you submitted on your application, such as your height, weight, and vitals, and determine the overall state of your health.

Generally, there are two options for completing your medical exam — you can either go to a medical facility to complete your medical exam, or a nurse will visit your home to conduct the procedure. 

The medical exam is completely free and not required if you’re applying for guaranteed universal life insurance.

If the exam decides that you’re overweight, have high blood pressure, or have been diagnosed with any health issues, your insurance classification could plummet. In some circumstances, your application could be denied based on your health. 

After the medical exam, the underwriter will request a statement from your physician that sums up the state of your health. It’s best to speak with your doctor beforehand to learn more about your health conditions, so there aren’t any surprises moving forward. 

Finally, the underwriter will perform a prescription check to verify the information you’ve listed about the drugs you take, either on a short-term basis or for maintenance purposes. They will usually work with the Medical Information Bureau to verify all of your application’s medical information. 

Analyzing Your Application Details

Once all of the information has been processed from your application, the insurance underwriter decides on your final classification rating. Insurance classifications are listed in an actuarial table.

An actuarial table is a spreadsheet that denotes life expectancy. The underwriter will use it to determine how likely you are to die at a specific age. They’ll also consider female vs male life insurance risks.

During this phase, the underwriter will first determine if you’re eligible for a policy. While every life insurance company has its own guidelines for issuing policies, a normal person should get approved even if they have a few health issues. 

Having your application denied outright means the insurance company is extremely concerned about your health and believes you will perish prematurely before the climax of your policy. 

If you are approved, the underwriter will consult the actuarial table to determine your rates. Once you agree, you’ll move forward with signing the contract. 

How do insurance classifications work?

It’s already been acknowledged that underwriters will assign classifications based on the results of your medical exam, application information, and other factors. It’s important to mention that every insurance company has its own specific classifications. 

Main Types of Insurance Classifications

Based on your classification, the insurance company will assume more risk and charge a higher premium. As you can see, it’s not impossible to receive a health insurance policy if you have a few health problems. 

If your application is denied, you should consider choosing a no medical exam life insurance option, such as:

• Simplified Issue Life Insurance. This is a very simple life insurance option, where the agency will ask a few health questions and give you a limit to how much coverage you can receive.
• Guaranteed Acceptance Life Insurance. This option is generally more expensive but available to customers seeking to cover funeral and burial expenses. 
• Group Life Insurance. This form of insurance is employer-provided life insurance, but the coverage limits are usually very low. And that’s just one problem with employer-provided life insurance. 
• Term Life Insurance. With no medical exam term life insurance, you can purchase life insurance on a term of 10, 20, or 30 years without a medical exam. 

If you have a complex medical history, the insurance company will use its discretion to approve or deny your application. 

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What are the other steps in the life insurance underwriting process?

While there are three main steps in the insurance underwriting process, an agency will always perform its due diligence in assessing your eligibility. To give you a full view into the underwriting for life insurance process, here are some more procedures you should be aware of:

Motor Vehicle Report

Do you think there is no link between your life insurance policy and your driving history? Think again. 

Your driving history indicates how risky you are. Therefore, if you have several moving violations, the company might determine that you’re too much of a risk to insure.

However, there is a clear distinction between a few driving tickets and a DUI. If you’ve received a few driving tickets in the past, it’s very unlikely that you’ll be denied life insurance coverage, although you might pay higher rates if the underwriter believes you’re a risk. Life insurance for alcoholics can be hard to qualify for.

On the contrary, if you’ve been convicted of multiple DUIs, caused property damage, or were directly involved in a deadly car accident, a company will likely not issue you life insurance coverage.

Actuarial Tables

It’s been mentioned before that actuarial tables are used to provide an estimate of your life expectancy. How your application is rated depends on a variety of factors, such as your family history, health, medical diagnoses, occupation, and whether you smoke or not.

Underwriters typically browse two separate actuarial tables:

• Mortality Table. A mortality table denotes what is called the mortality probability of a given population. 
• Build Table. This table relies on your body mass index (BMI) to find out how healthy you are. 

Life insurance premiums typically increase if you’re overweight. However, if you’re deemed overweight, there are some ways you can decrease your rates. 

Some insurance providers will offer discounts if you lose weight in the future. Overall, if you’re a healthy person, you may be judged by the mortality table and compared to other people in your area in regard to life expectancy. Learn more on how to get life insurance with a high body mass index (BMI).

Credit System

Not every insurance company is created equal. Many insurance companies have their own internal credit systems. This means that an underwriter will use their discretion to give you extra credit points to improve your insurance classification score. 

For example, let’s say that you’ve been diagnosed with a pre-existing condition, and the underwriter assigns you a Standard classification. The underwriter may give you extra credits if you’re actively seeking to improve your health through medication and preventative care. 

Underwriters can check your medical exam statement and prescriptions to determine the steps you’re taking to prevent your health problems from worsening. You can also reapply for life insurance in the future once your health has improved.

How life insurance companies look at your heart and any conditions will depend on the company and your condition.

What’s the difference between individual underwriting and group underwriting?

There are two ways you can apply for life insurance. You can apply for an individual life insurance policy on your own via an agent, phone, or website. 

On the other hand, a group life insurance policy is offered by your employer. Because your employer has purchased a group life insurance policy from an agency, you can forgo the medical exam and opt-in immediately. 

Before choosing which route to take, it’s important to analyze the difference between individual underwriting and group underwriting. 

Individual underwriting is based on your specific health, age, medical conditions, and lifestyle. Individual premiums are usually more expensive than group premiums and feature fewer benefits. 

On the other hand, group life insurance policy premiums are determined based on assumptions about the health of everyone being covered. Employer-provided life insurance is often group coverage.

How does foreign travel affect your life insurance application?

When you’re applying for life insurance, one of the things that the insurer will consider is how your foreign travel affects your risk. 

If you’ve been traveling to high-risk areas, or if you’ve been gone for an extended period of time, this could raise your premiums or even disqualify you from coverage. Therefore, if you’re planning on taking a trip overseas, it’s important to talk to your insurance company beforehand and find out how it will affect your policy. 

The important question here is why does an insurance company care about where you travel? 

When you’re traveling in a foreign country, many things can go wrong, from accidents to health emergencies. And if something happens while you’re abroad and you don’t have adequate coverage, it can be very costly indeed. 

That’s why it’s important to always read the fine print before signing up for any type of life insurance policy because not all policies are created equal. 

Some policies might cover travel-related risks, while others might not. So make sure you know what’s included before making a decision.

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How to Get the Best Life Insurance Rates

Now that you know how the underwriting process can affect your life insurance rates, the next step is making sure you get the cheapest quotes possible. Follow these tips on how to find cheap life insurance companies.

Consider Term Life Insurance

When it comes to life insurance, there are two main types: term and permanent. Term life is the simplest and most affordable option. It provides coverage for a specific period of time (the “term”), after which the policy expires, and no benefits are paid out.

Permanent policies offer lifelong protection and can be more expensive than term life policies. 

Many people opt for term life insurance because it’s a simpler, more affordable option than permanent life insurance. But it’s good to do a little research to decide between term vs. permanent life insurance: which is better for you?

Don’t Neglect the Medical Exam

Are you concerned with how your health can affect your premium? Nonetheless, you should still opt to take the medical exam offered by your insurance company.

This is because choosing a no-exam life insurance option is almost certainly more expensive. Without taking a medical exam, any insurance company will consider you to be a risk. Even if you’re not in perfect health, it makes the most financial sense to opt for the medical exam.

Buy Life Insurance Right When You Need It

When you are in good health, it makes sense to buy life insurance because you’ll fall into the best life insurance rating class. If you wait until you are unhealthy, your rates will be much higher. Insurance companies take into account your overall health, including your weight, blood pressure, and cholesterol levels when calculating your premiums.

If you are generally healthy and have no major health concerns, buying life insurance while you are young and healthy can save you a lot of money in the long run. You can lock in low monthly rates that will stay the same for the duration of your policy.

Quit Smoking

Smoking is one of the leading causes of death in the United States, and it can also affect your life insurance premiums. If you are a smoker, your rates will be much higher than those of a non-smoker.

Fortunately, there are ways to get cheaper life insurance rates as a smoker. One way is to quit smoking. If you can successfully quit smoking and remain tobacco-free for a period of time (usually 12 months), many insurance companies will offer you a discount.

Another way to get cheaper life insurance rates as a tobacco chewer or smoker is to take out a term life policy instead of a permanent policy. Term life policies are less expensive than permanent policies, and they also do not require a medical exam.

Only Buy Coverage You Can Afford

Life insurance should be a standard monthly expense. If you purchase a policy that’s too expensive, you’ll likely find yourself struggling to make the monthly payments and may even end up canceling your policy.

On the other hand, if you buy a policy that’s too cheap, you may not be adequately covered in the event of sudden death. It’s important to find the right balance between affordability and coverage. You’ll want to answer the question how much life insurance do I really need?

That’s why it’s important to shop around and compare rates from different insurers before purchasing a policy. You want to make sure you’re getting the best deal possible without overspending.

Take the Necessary Steps Toward Improving Your Health

Life insurance underwriters will comb through your entire medical history to determine how healthy you are. If they deem you unhealthy, there are some ways to get a cheaper premium.

Three helpful ways to reduce your premium are to lose weight, lower your cholesterol, and reduce your blood pressure. High blood pressure and cholesterol are two of the leading causes of death in the United States.

A healthy blood pressure reading is 120/80 or lower. In addition, a healthy cholesterol reading is below 200 milligrams per deciliter (mg/dL).

If you’re looking for life insurance with high cholesterol or high blood pressure, there are some things you can do to get a cheaper life insurance rate. One way is to take medication to lower your blood pressure. You can also eat a healthy diet to lower these readings gradually over time.

Even if you don’t have perfect levels, doing the work to improve your health is still important. It can help you get a cheaper life insurance rate and make sure you’re adequately covered in case something happens.

Avoid Riders You Don’t Need

Riders are optional features that you can add to a life insurance policy. They can provide extra coverage and protection, but they can also be expensive and unnecessary. That’s why it’s important to avoid riders you don’t need.

One type of rider that is often unnecessary is the accidental death and dismemberment insurance rider. This rider provides extra coverage in the event of accidental death, but it is usually very expensive and not worth the cost.

Another type of rider that is often unnecessary is the waiver of premium rider. This rider allows you to stop making premium payments if you become disabled. However, most policies already have a disability waiver built in, so this rider is usually not necessary.

Inquire About Discounts for Paying an Annual Premium

Some life insurance companies offer discounts for paying your premium in one lump sum instead of monthly. This is called a yearly premium.

If you are able to pay your premium in one lump sum, be sure to ask your insurance company about discounts. Many insurers offer discounts of up to 10% for yearly premiums. This can be a helpful way to save money on your life insurance policy.

Compare Life Insurance Quotes Online

When shopping for life insurance, it’s important to compare quotes from different insurers. This will help you find the best deal possible without overspending.

The good news is that you can use the internet to browse dozens of customized life insurance quotes so you can make the most affordable decision. Start here by comparing free life insurance quotes from local companies today.

Case Studies: Illustrating the Impact of Life Insurance Underwriting

Case Study 1: John’s Healthy Lifestyle

John, a 35-year-old non-smoker, leads a healthy lifestyle. He exercises regularly, maintains a balanced diet, and has no significant health issues. When applying for a life insurance policy, the underwriter assesses his application and assigns him a Preferred Plus classification.

As a result, John receives a policy with lower premiums due to his excellent health and low-risk factors.

Case Study 2: Sarah’s Pre-existing Condition

Sarah, a 45-year-old woman, has a pre-existing health condition that requires ongoing medication and management. When she applies for life insurance, the underwriter carefully reviews her medical history and classifies her as Standard due to her condition.

As a result, Sarah’s premiums are slightly higher than those of individuals with no pre-existing conditions.

Case Study 3: Mark’s Risky Occupation

Mark works in a high-risk occupation that involves exposure to hazardous conditions. He applies for life insurance, but the underwriter determines that his occupation poses an increased risk.

As a result, Mark is assigned a substandard classification, leading to higher premiums to account for the occupational hazards.

Case Study 4: Emily’s Medical Exam Findings

Emily, a 50-year-old woman, undergoes a medical exam as part of the life insurance underwriting process. The exam reveals that she has high blood pressure and elevated cholesterol levels.

The underwriter considers these factors and assigns her a Standard Plus classification, resulting in slightly higher premiums due to her health conditions.

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