WHAT IS UNDERWRITING ANYWAY?

Ever wonder how life insurance companies review your application, and how they come up with the amount you pay for your premiums? It’s all about risk. Before a life insurance company can accept your application for coverage, they need to determine what level of risk you present to the company’s business. This process is called underwriting, a word that originated centuries ago at British insurer Lloyd’s of London when bankers would literally write their name under a risk assessment. Professional underwriters review the criteria on your application to see if it’s possible to offer you a policy and if so, how much coverage you’re eligible for and what you’ll pay in premiums.

Underwriters apply the abstract work of the actuary to the real-world case of an insurance applicant. It becomes the underwriter’s job to apply the actuary’s rates to the quote-seeking applicant, who may present variance within the subset of the statistical model. There are several factors that are considered during the underwriting process:

Medical Questions and Exams

Your age and health status are the most important factors in determining insurability as well as the amount you pay for life insurance. Health status is assessed either through a physical exam, answers to questions about your health and medical history, or a combination of those things. You might be surprised to learn some of the ways your health is evaluated. For example, the use of certain medications for preexisting conditions may make you a higher risk.

It’s important, to be honest when self-reporting the answers to medical questions, as false statements can result in penalties and problems when benefits are to be paid.

The most important factors that influence whether you’re insurable – and if you are, how much you’ll need to pay, are your age and your health status. Underwriters will assess your health status either through a physical examination, a questionnaire about your health and your medical history, or a combination of both. 

You might be surprised to learn some of the ways your health is evaluated. For example, the use of certain medications for pre-existing conditions may make you a higher risk. False statements can result in penalties and problems if you need to claim a benefit. That’s why it’s vital, to be honest when self-reporting your answers to medical questions.

Your Financial Health

There’s also a financial element to your risk assessment: making sure an insurance policy is appropriate for an individual’s financial situation. Obviously, an insurance company wants to know an individual has the income to afford their premium. 

Behavior

Another factor considered for your underwriting is behavior, which includes driving history, occupational history, and hobbies. Unsurprisingly, a firefighter who races motorcycles in his spare time will usually pay more for life insurance coverage than someone who works in an office and spends weekends in their garden. But for less extreme examples, isn’t the idea of dangerousness subjective? It’s a combination of different data from different industries and different levels of expertise. 

When it comes to behavioral risk, factors like driving history, and hobbies, there is also data that correlates those types of things with mortality. The life insurance industry as a whole has a tremendous amount of data correlating those inputs to mortality outcomes going back decades.

However, while on the majority of things there’s a pretty clear consensus on what’s risky and what’s not, insurers take slightly different perspectives at the margins. Some carriers are very risk-averse for certain hobbies. Sometimes it might come down to having a specific insurance underwriter or physician at your company that really has the expertise you need to evaluate a specific risk. There are also just different philosophies at different companies. Marijuana use is an example where, over time, different companies have moved at different speeds. Some carriers take a conservative approach and others have loosened up as it becomes legal in more states.

If you are looking for an insurance company that will provide you an underwriting truthfully with your prices, make sure to check out Manila Bankers Life Insurance Corporation. One of the longest-standing insurance companies in today’s market that have been around since 1967. You can comfortably discuss your underwriting with their friendly and patient insurance agents.