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Insurance Life Insurance

Life Insurance Underwriting Process

Updated May 12, 2023   |   5 mins read

Life insurance is an important consideration for those who have families, make payments on a mortgage or other debts each month, or don’t have the savings to pay for funeral expenses. Having a policy can offer your loved ones peace of mind that in the event of your death they can not only take care of your burial and other final expenses, but they may also be able to stay afloat financially after you pass.

A life insurance policy, however, also costs money every month in the form of a monthly premium, and finding the right insurance that balances cost with value can be difficult. In fact, one of the first things prospective policyholders want to know is whether or not life insurance is worth it. Each policy is different, and the process that the insurance company uses to determine your cost is known as underwriting.

What Life Insurance Companies Consider During the Underwriting Process

Once a prospective policyholder submits a life insurance application, whether term life insurance or whole life insurance, the insurance company goes through a phase of gathering information about that customer before approving the policy. The company looks to assess how much of a risk they are—in essence, what the probability is that the insurance company will need to pay out a death benefit.

The company takes several factors into account, especially medical information including any preexisting conditions that may increase risk. If you have a disease such as cancer in your past, for instance, the insurance company will see you as a higher risk and may not approve your policy or may charge you more. Other factors that are often considered are:

  • Age
  • General health
  • Whether you are a smoker or not
  • Gender
  • Family history
  • Weight and body mass index (BMI)

All of these factors are placed into an actuary table, which offers an idea of your total risk to the company. Sometimes credit history is also included in their checks as well; after all, the company wants to be sure you’ll make the payments on your policy. Some insurance companies may also look into your driving record. Typically, the insurance company doesn’t factor in your friendliness, any relationship you’ve built with the insurance agent, or other subjective factors. Their charts are based on statistical analysis and probabilities that offer a “best guess” scenario of risk based upon your lifestyle and other factors.

Medical Exams in the Underwriting Process

For most life insurance policies, especially those with a higher value, a full medical exam will be required. This exam resembles a standard physical complete with blood work, urinalysis, and other basic tests. These tests not only confirm your honesty to the company but can also catch undiagnosed issues that could signal high risk.

In some cases, you can receive life insurance with no medical exam; these typically have lower monetary limits, narrower pay-out parameters, or a higher policy premium to offset the higher risk the company assumes by taking on a new client who may have undetected medical conditions.

Whether an exam is required or not, most insurance companies do require you to complete a lengthy questionnaire about you and your family’s medical history, lifestyle choices such as alcohol or prescription drug use, and other health factors that the insurance company may need to know to determine your risk. This questionnaire is often done over the phone and requires about 15 to 20 minutes to complete.

Finding the Best Life Insurance Policy

Just like other financial products, there is no “one size fits all” solution. There are several types of life insurance policies, and there are many different companies. Each prospective policyholder could receive several offers from these companies, and those offers will differ from person to person based upon their risk factors.

When you’re looking at purchasing the best life insurance, talk to a number of companies about what their options are and how those options are affected by your personal situation, health, and finances. Don’t take the first option you find—chances are there is a better one out there, and you’ll find it with a bit of research.

>> Read more: How Life Insurance Works

Bottom Line

Life insurance costs aren’t static; each person is different, with a variety of individualized health, financial, and personal factors that determine their specific risk to the insurance company. Understanding how the life insurance underwriting process works can help you narrow down your options to the best one for you and your family.

Since many risk factors are lifestyle or health-based, you can also lower your risk in some ways. Quitting smoking, losing weight, or lowering your blood pressure through healthy eating and an active lifestyle can significantly change your risk level to an insurance underwriter. In some cases, even your field of employment could be a factor; if you have a dangerous job, for instance, you could find yourself unable to get approved or having to pay a higher amount. If necessary, switching careers is an option if you seem to have a hard time getting approved.

Understanding and minimizing your risk factors could end up being the difference between approval and denial for a policy, but it can also help you get the best rates for your premium.