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Apr 15, 20225 min

Understanding Life Insurance Underwriting

It's complex but we simplify it inside.

Underwriting is a key part of getting a life insurance policy, but many still don’t know what’s involved. Much like getting a mortgage, waiting to get the green light for life insurance can be long and even a little nerve-wracking. But it doesn’t need to be if you understand what goes into underwriting and why many insurers believe it’s necessary. The purpose of this guide is to bring you the lowdown on life insurance underwriting and everything you need to know.

What is life insurance underwriting?

An underwriter is a person tasked with looking at all the data collected in an application related to finances. Whether you’re getting a mortgage, a loan, or life insurance, there’s a good chance an underwriter will be required. Sometimes companies perform underwriting, but most of the time it’s a person working for the insurer.

In the world of life insurance, the underwriter provides an insurance classification that leads to a decision about insuring an applicant. This usually entails applicants either being accepted or rejected, as well as setting their premium if they get the green light.

The better the classification, the lower the monthly premium on the life insurance policy. Ultimately, and as far as life insurance is concerned, the underwriter is trying to determine how likely it is that you’re going to die while the policy is active. Blunt, yes. But also necessary to determine the premium.

How does underwriting work?

The classification is the result of looking through the data provided. But first, the underwriter needs to get to the point where they can make a decision. They’ll look at aspects like your age, sex, weight, hobbies, and profession. To illustrate, someone who is a pilot and also enjoys skydiving as a hobby will be deemed more of a risk than a person who sits at a desk all day and likes going to the movies as a hobby.

In a nutshell, all of these factors combine to form the underwriting process. It’s a manual part of the applications, something determined by humans looking at the real-world risks of giving someone a life insurance policy.

What is the underwriting process for life insurance?

The underwriting process collates all of the information provided by the applicant. At this point, the underwriter makes an informed decision about the eligibility of the applicant for the specific policy they’ve applied for. The steps involved include:

A personal questionnaire

This is usually part of the application process and includes questions about your personal history, such as where you were born, your profession, and your income. It gives the underwriter an idea about your lifestyle.

The medical examination

Plenty of life insurance products require the applicant to undertake a medical exam. This is pretty thorough, as it needs to assess your overall health. It’s performed by an individual with a medical background and includes:

  • A medical history questionnaire.
  • Physical measurements (height, weight, etc).
  • A sample of bodily fluids like urine and blood.

Background check

Background checks involve:

  • A motor vehicle report.
  • A prescription drug database check.
  • A review of any previous life insurance applications reported by the Medical Information Bureau (MIB).

Medical records

Finally, the underwriter will look at your medical records, as well as notes taken by your doctor and ones kept on your medical file. These records hold vital information about your medical history, along with any diagnosis you may have.

What does a life insurance underwriter look for?

Life insurance underwriters are looking for anything that could shorten your life expectancy. Something like smoking would be considered a potential red flag, as would extreme lifestyles, such as hobbies posing a risk to your livelihood.

If the underwriter places you in a high-risk category, your life insurance premiums will be more expensive. In extreme cases, it may also mean that you’re not eligible for a policy. Again, this is something the underwriter must determine from going through the information they have.

It’s not all about the bad aspects, though. Underwriters also look for signifiers that suggest longer life expectancy. Being within your BMI, having a long-term professional employment rate, and general good health are all indicators that can boost your chances of a good risk assessment.

How long does the underwriting process take?

The length of time it takes to complete a life insurance policy depends on the underwriter and the information they need to process. All cases are different, and some applications may be more complicated than others.

Saying that, the majority of underwriters often complete applications within 48 hours. This doesn’t mean that you’ll get the results within that time frame, however. Expect it to take several weeks from the moment you complete the application.

It typically takes three to six weeks, and that includes the underwriting process. But even if it takes a little longer, you don’t need to set the alarm bells off. Delays can be caused by pretty much anything, such as application volume.

Is an underwriter always required?

The short answer is, probably. Some life insurance companies may offer immediately upon submission if they feel confident enough, though this is rare. Most applications need to go through some form of underwriting.

Since Covid, however, aspects like medical exams have become less frequent. Even before the pandemic, technological advancements meant medical exams weren’t as routine. As a rule of thumb, it’s a good idea to expect some form of underwriting, either with a thorough medical exam or without one.

In conclusion: life insurance underwriting

The majority of life insurance applications go through some form of underwriting, so there’s no need to panic. The best thing you can do is fill out all of the information correctly and comply with any questions that may come back to you from the insurer. Do that, and you’ll have the best chance of landing a life insurance policy with a smooth underwriting process.