Understanding the Life Insurance Underwriting Process & Each Type.
If you’ve been shopping for life insurance, then you may be at least somewhat familiar with the fact that insurance companies want to gauge the risk that they’re taking on before they accept an applicant for coverage. The gauging of risk is determined during the life insurance underwriting process.
In doing so, an applicant for a life insurance policy will go through an underwriting process.
Underwriting is a term that is used by life insurance carriers to describe the process of assessing risk—underwriting directly determines the risk that is being taken on.
How does Life Insurance Underwriting Work?
In its most basic sense, insurance underwriting is the process of determining how much risk an applicant for coverage may pose to the insurance company. This task is taken on by an insurance underwriter (or team of underwriters).
So, what is an underwriter looking for?
There are several things that an insurance underwriter will typically be looking for. These include:
- Information about the applicant’s health (as well as their health history)
- Information regarding “risky” activities the applicant may participate in (such as motorcycle racing or scuba diving, as well as speeding tickets or DUIs), and
- The presence of various drugs that the applicant may be taking
Types of Life Insurance Underwriting
Although no two insurance companies use the exact same underwriting criteria and guidelines, all insurers will want to have an idea of how much risk they are taking on with an applicant for coverage.
There are two types of life insurance underwriting.
- Simplified Issue (No Medical Exam Needed)
- Fully Underwritten
Information that can be used to make life insurance underwriting decisions:
| Simplified Issue | Fully Underwritten |
|---|---|
| MIB (Medical Information Bureau) | MIB (Medical Information Bureau) |
| RX (Prescription Meds) | RX (Prescription Meds) |
| MVR (Motor Vehicle Report) | MVR (Motor Vehicle Report) |
| *Public Records | *Public Records |
| *Court Records | *Court Records |
| *Property Records | *Property Records |
| Medical Exam | |
| Urine Test | |
| Blood Test | |
| *EKG or Stress Test |
*Possibility carrier will check
Fully Underwritten
When applying for a life insurance policy that is fully underwritten you will have to take a medical exam. The biggest difference between a fully underwritten and a simplified underwritten policy is having to take an exam.
There are typically more in-depth medical questions on the application for coverage with a fully underwritten life policy. These will ask you about your overall health condition, whether or not you have been diagnosed with various illnesses or conditions, and what (if any) prescription medications you take (along with the dosage amount).
If you do have any health issues the insurance company will typically need to know more information about the condition. They will want to know things like how long ago you were diagnosed, what medications you take, and what other methods (such as diet and exercise) you are using to help with your symptoms.
MIB Reports
The underwriter can obtain additional health-related information through accessing your attending physician statement (which is your health history from your doctor), and also by checking the Medical Information Bureau (MIB). The information in the MIB database can give more clarity to insurers concerning whether or not you have been turned down for coverage in the past, as well as whether or not you have omitted any health-related information on the application.
Phone Interview
Depending on the insurance carrier, you may also be required to participate in a phone interview. Doing so can provide a life underwriter with more details on your health and medical history.
Medical Exam
With a fully underwritten life insurance policy, a medical exam is also usually required. Here, you will meet with a paramedical professional (also often referred to as a “paramed’). During this paramed exam (which typically only takes about 30 minutes to complete), the paramed with take a pulse and blood pressure reading from you.
Blood and Urine Samples
They will also obtain a blood and urine sample. With these samples, the insurance underwriter will be able to determine various health information – such as your glucose levels, cholesterol, and kidney values, as well as if you are using certain drugs.
All of this can provide the underwriter with a clearer picture of the risk you may present to the insurance company.
EKG
Based on your age, health, and amount of coverage you are applying for, the medical examination may also include an EKG. An EKG will help the underwriting team to know more about your heart and cardiovascular health.
Simplified Issue Underwriting
In contrast to a fully underwritten life insurance policy, a simplified issue means that you will still be required to answer health-related questions on the application for coverage. However, as the name “simplified issue” implies, there is no need to undergo a medical exam or to provide a blood and urine sample.
While some insurance carriers have the option of ordering an Attending Physician Statement (APS), with a true Simplified Issue policy, the decision about whether to accept or reject an applicant will be based on the answers provided on the application for coverage, as well as the:
- Medical Information Bureau (MIB) information
- RX / Prescription drugs history
- Motor Vehicle Report
Because there is no need to wait for test results to come back to the insurance underwriters, simplified issue policies can frequently be issued much more quickly than a fully underwritten life insurance option.
Depending on the carrier and the policy, it may even be possible to have a policy approved within just days or even hours.
In the past, due to the higher amount of risk that the insurer was taking on, the coverage amount was often limited or capped on simplified issue policies. Today, however, some life insurance carriers will offer coverage of up to $1 million, with no medical exam and no blood or urine sample.
Simplified Issue Underwriting Guidelines by Company
| Carrier | Product Name | Issue Ages | Coverage Limits | APS Underwriter Discretion |
|---|---|---|---|---|
| Sagicor | Sage Term | Ages 18-65 | $50,000 – $1,000,000 | No APS |
| Lincoln | TermAccel | Ages 18 -50 | $100,000 – $1,000,000 | Yes |
| SBLI | Level Term | Ages 18 -60 | $100,000 – $750,000 | No APS |
| North American | Column 1 Value | Column 2 Value | $50,000 – $500,000 | Yes |
| Banner | APPcelerate | Ages 18 -50 | $100,000 – $1,000,000 | Yes |
| ANICO | Non-Med 350 | Ages 18 -65 | $50,000 – $350,000 | Yes |
| Minnesota Life | WriteFit Express | Ages 16 -54 | $50,000 – $250,000 | Yes |
| Transamerica | Trendsetter | Column 2 Value | Column 3 Value | Yes |
| United Of Omaha | Express | Column 2 Value | $25,000 – $250,000 | Yes |
| Principal | Accelerated | Ages 18 -60 | $50,000 – $1,000,000 | Yes |
Which Type of Underwriting is Best?
While fully underwritten and simplified issue, life insurance policies can differ in terms of the application process, whether one is better than the other can depend on the person applying.
For instance, while a fully underwritten life insurance policy may take longer to make its way through the underwriting process, these policies will typically provide you with the best premium rate (maybe). This is particularly true if you are in good health. You may also have more coverage options available to you with fully underwritten life insurance.
Conversely, while a simplified issue policy is in many ways “easier” to qualify for, this is not necessarily always the case. As an example, if you have certain health conditions, you could still end up being declined. There are also age restrictions on many simplified issue life insurance policies.
Also, due to the added risk that an insurance carrier may be taking on with an applicant for a simplified issue policy, there are many cases where the cost of the insurance coverage is higher than a comparable fully underwritten policy.
The bottom line is that, if you are in relatively good health, you could be offered a lower premium rate with fully underwritten coverage. But in any case, it always helps first to discuss your life insurance needs and goals with a specialist in the field before you commit to a policy.
Conclusion: The Life Insurance Underwriting Process
If you’re not entirely sure about what type of life insurance – and life insurance underwriting process – it is best for you, give Insurance Geek a call. Our primary focus is on insurance, so we are well-versed in life insurance coverage options, underwriting criteria, and quote comparison.
Plus, because we are affiliated with more than 30 top-rated life insurance carriers, we can help you to find the policy, the premium, and the application process that works the best for you and your budget.
Stop playing the guessing game when it comes to protecting those you love with life insurance.
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