What Does the Underwriting Process Mean To Me?
It is common knowledge that life insurance companies make a profit while providing you with a guarantee of financial protection for your family. Simply speaking, insurers weigh the odds that they will have to pay out the value of your policy to your beneficiary. They charge you a fair and reasonable premium based on the amount of risk you bring to the relationship.
That's why you are required to qualify for a life insurance policy by meeting certain standards.
Your personal information is collected during your application, either on the Internet or with an agent. The information is then processed by a person (life underwriter) or through an automated computer system to see if you qualify based upon specific criteria, a process known as risk classification or the underwriting process.
The underwriting process allows the insurance company to determine what rate you will pay, based upon your specific level of risk. Those who are healthy in both lifestyle and medical history are less of a risk to insure. The same type and amount of insurance will cost less for someone who is healthy, as compared to someone with significant health problems.
As previously mentioned when you apply for a life insurance policy, an insurance company will examine several factors based upon its underwriting standards and guidelines. These factors include, but are not limited to, the following: - Your current health status - Your current height and weight - Your age - Your family's medical history - Your personal habits, such as tobacco or alcohol use - Your lifestyle, such as occupation, participation in dangerous sports, etc.
Once the insurance company has received your information, all personal, health and financial information will be held in strict confidence. Sometimes, an underwriter for the company will personally review and examine your information and evaluate what risk classification you fall into. In recent years, many insurance companies have adapted a computer-based underwriting system that does the same process - but with quicker results.
Your risk profile will place you into a specific category, which determines how much you will pay for your life insurance policy. Some common classifications include:
Preferred and/or Super Preferred | If you're in excellent health now and have no significant history of health problems, you could be charged a preferred rate. This is the lowest rate.
Standard | Most people who apply for life insurance will fall into this category, usually due to their weight or family health history.
Smoker | If you are a tobacco user, you will pay higher premiums since the premature mortality for smokers is higher than non-smokers.
Rated | If you pose an above-average risk, due to obesity, diabetes, heart issues or other serious health concerns, you will be classified as an increased risk. You'll have to pay higher premiums than those who fall under preferred or standard rates.
Declined | In some circumstances, applicants are rated as uninsurable. This is usually due to having multiple or severe health issues, or a terminal illness. Applications coming under this category are declined for coverage.
It's important to remember that some risk classifications are not permanent and can be modified with simple life changes. For example, if you're placed in a rated category due to smoking and being severely overweight, it would be smart to reapply for insurance when you've quit smoking and lost weight. Remember to always be accurate and forthcoming with information when applying for insurance, since you may classify better than you think.
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