When you are applying for a life insurance policy, you might be curious: What happens next?
When you apply for life insurance, whether it is for a cash value policy such as a whole life, universal life or variable universal life or even a term policy, your life insurance company will review your application and other information to determine your eligibility and rates for your policy.
This process is known as underwriting and has the goal of approving you for a policy and confirming the cost of your premiums. Although many life insurers are adding automated, digital underwriting processes, underwriting remains an ‘art’ where some human interaction is critical.
The team at National Brokerage Atlantic has decades of experience in guiding clients through the life insurance underwriting process in order to obtain the best results.
The Life Insurance Underwriting Process
There are three main steps to the underwriting process:
- Determine if you’re eligible for life insurance coverage
- Establish how much coverage you can purchase
- Locking in the price you will pay for your policy
Two centuries ago, life insurance underwriting was pure art: the underwriter would interview the client in person and make an assessment. The concept of evidence-based underwriting emerged about a century ago when the science of health and data gained credibility. Underwriting, at present, is a fine balance of art and science with underwriting evaluations becoming increasingly evidence-based with advances in the digitization of healthcare data and exponential improvement in predictive models.
Collecting data from the prospective insured starts the underwriting process. You will be asked questions about your health, your occupation, your finances and even your leisure activities. You may even be asked to provide some medical evidence in the form of blood tests, or you may be asked to take a medical examination where several tests may be performed. The insurance company covers the costs associated with any medical underwriting.
In some cases, you may be asked to provide an Attending Physician’s Statement (APS). An APS is a summary from one or more of your past doctors about your overall health.
Underwriters then consider the following risk factors in assessing an applicant for life insurance coverage:
- Age
- Gender
- Health
- Family Medical History
- Occupation
- Hobbies
- Citizenship Status
- Your Address
- Coverage Amount
- Other Policies Held or Applied for
- Policy Beneficiary Listed
The Art of Assessing Applicants
At the life insurance company, underwriters collect additional information about applicants. The Medical Information Bureau is checked for any information related to previous applications for life insurance. Then, motor vehicle records are analyzed to see if an applicant is a safe driver, and some insurance companies even access an applicant’s credit history. Once underwriters have collected everything mentioned, they turn to their company’s internal underwriting criteria and classification system.
Until recently, the underwriting decision was almost entirely handled by the underwriting and much depended upon the underwriter’s experience and performance. Now, humans do the risk scoring and decision making in underwriting, but technology helps them make these decisions even faster and better. Referred to as accelerated underwriting, insurance companies are augmenting their underwriters with digitally enabled, data-assisted tools. This modernization was sped up by the COVID-19 environment where most of the major insurance companies digitized the entire application and underwriting process for qualified applicants for policies up to a certain amount.
The Underwriting Decision
For large policies and where premium financing may be involved, the underwriting process can take up to eight weeks – or even longer if it takes a while to obtain outside reports such as an APS. For smaller policies where accelerated underwriting is applied, the process can be handled all electronically, and a policy can be issued within a day.
If approved for coverage, an underwriter will make an applicant a formal underwriting offer. The offer will state the amount of coverage available and the underwriting classification. The cost of a policy is determined by the underwriting classification where each life insurance company is responsible for the name and criteria of each classification. For example, the top underwriting classification might be “Super Preferred” where other levels could be “Preferred”, “Standard” or list some type of rating associated with an applicant’s health, occupation, hobbies, etc. Policy ratings increase the cost of premiums but can often be reevaluated by an underwriter each year to assess for an improvement in classification.
We Know the Art of Underwriting
It is difficult to imagine a future of underwriting without a human touch. Life insurance companies continue to combine automation and ‘big data’ with the experience of its underwriters. At National Brokerage Atlantic, we stay on top of technological advances to the underwriting process and prepare our clients for what to expect and how they can obtain the policy they need at the best price.
