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  • What is underwriting for life insurance?
  • July 31, 2013
  • Tony Steuer

    By Tony Steuer, CLU, LA

    So, you’ve look at various life insurance policies, examined different companies, and now ready to apply for life insurance. The next step on your journey to life insurance is the underwriting process.

    At this point, you have selected a company (or companies) to which you are going to apply for a policy and a life insurance adviser. If your adviser is on the ball, they should have prepared a proposal based on per-underwriting issues and concerns.

    In order to fully understand the writing process, you first need to recognize that insurance medicine differs from clinical medicine.

    Clinical medicine is about diagnosis and treatment; your doctor’s job it to keep you well, and prevent you from getting sick.

    In contrast, insurance medicine seeks to determine the level of risk assumed by the insurance company if it issues a policy, and to set an appropriate premium to cover that risk.

    Take the time to discuss the underwriting process with your insurance adviser to flesh out your needs and wants.

    For example, Company A may react differently to a given medical condition than Company B. One company’s “standard risk” is another insurer’s rated risk (i.e., issued at a higher-than-standard premium rate).

    While modern life underwriting is a sophisticated process, with elaborate point rating systems and complex underwriting manuals that vary from company-to-company, it is sill more art than science.

    Take the time to discuss the underwriting process with your insurance adviser, so you will know what to expect. Make sure that your adviser is experienced enough to get you the best offer from a suitable company.

    In insurance medicine, the underwriter works with the company’s medical director to make a mortality assessment (i.e., determine the applicant’s life expectancy with reference to the mortality table), considering all relevant factors, such as disease or medical problems present at the time of application.

    The underwriter considers all the available information and then renders an expert opinion of the applicant’s insurability and the premium to be charged. Some weight may be given to the quality of care being received from a physician.

    The next step is to complete the application. Answer all questions as truthfully and accurately as you can. Your adviser should be able to assist you with any questions about the application.

    In most cases, your adviser is an independent broker, not an employee of the insurance company. Also, your adviser is not authorized to make or modify contracts, waive any requirements, or advise you to omit any information that may be required by the insurance company.

    While each company has their own individual requirements and procedures, most will look at the state Department of Motor Vehicle reports. You may also be asked to fill out a supplementary questionnaire, such as a travel or an aviation form.

    All of these factors are taken into consideration to determine your potential financial risk to the insurance company.

    Your approach and attitude towards the underwriting process can have a significant impact on a favorable outcome. Life insurance companies are in the business to serve the public and make money. They are vitally interested in a win-win situation for both parties of the contract.

About Tony Steuer

Noted insurance author Tony Steuer has spent over 25 years in the life insurance industry. Steuer’s leadership roles include serving on the California Department of Insurance Curriculum board and the National Financial Educator's Council Curriculum Advisory Panel as well as having served as President of the San Francisco Chapter of the American Society of CLU & ChFC, President of the leading Life Insurance Producers of Northern California, and as a board member of the San Francisco Life Underwriters Association. Mr. Steuer is the author of Questions and Answers on Life Insurance: The Life Insurance Toolbook, The Questions and Answers on Life Insurance Workbook and The Questions and Answers on Disability Insurance Workbook - the first two were awarded the “Excellence in Financial Literacy (EIFLE) Award from the Institute of Financial Literacy. Steuer holds a Chartered Life Underwriter (CLU) designation and also holds the Life and Disability Insurance Analyst License, a designation that is held by less than thirty people in California.

Creative Commons License
Questions & Answers on Life Insurance by Tony Steuer, CLU, LA, CPFFE is licensed under a Creative Commons Attribution 3.0 Unported License.

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