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What's ‘life insurance underwriting’?

I’ve had several emails in the past 6 months asking for clarification about ‘underwriting’. So here goes;

Before a life insurance company can offer you a life insurance policy, you usually need to be ‘underwritten’.  Simply put, this means that the insurance company must assess your risk of dying earlier than the average person of your age and gender.

If, in their opinion, you are no more likely to die earlier than average, they’ll offer you a life insurance policy at the standard price. This is usually the price they quote you at the beginning of the process.  If on the other hand there is data suggesting you may die earlier than average, expect to be offered a policy on terms modified to suit your circumstances.  Generally this means an increased price or specific causes of death excluded from your policy.

The job of assessing how likely you are to die earlier than average is carried out by an ‘underwriter’.  The underwriting process involves asking you a series of questions pertaining to your health, lifestyle, occupation and pastimes. These questions are almost always included in the life insurance application form. Obviously if you have a history of a medical condition could potentially shorten your life, then that’s a red flag to an underwriter. Likewise, a lifestyle including excessive drinking or consumption of illegal drugs.

Pastimes are handled a little differently.  If you participate in a dangerous pastime such as hang gliding, you will generally be offered a loaded price to cover your participation, or you’ll be given the choice to exclude the pastime from your policy.

Modern life insurers, such as Pinnacle Life, underwrite their applications directly on-line – through a software-based expert system sometimes called ‘electronic underwriting’ - reducing the time it takes to approve a policy from days, weeks or even months down to minutes. Only in those cases where the software can’t make the underwriting decision will applicants be required to interact with a human underwriter.

Underwriting is not an exact science.  It is usually carried our by people with years of industry experience.  Many underwriters worked initially as nurses or even doctors before becoming underwriters.  Sometimes during the process underwriters need to see the medical records held by your doctor. However, this shouldn’t open the door to an underwriter viewing all your medical files – only the records that pertain to the medical condition relating to your longevity. (See earlier post)

If you have any specific queries on life insurance underwriting, we welcome your contacting us.  

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