The underwriting process is the entire analysis of the risk that a person may die in the time frame the insurance will cover. The process includes not only your current health but your past health, your parent’s and siblings’ health, your hobbies, driving record and your occupation. It is a look at the total picture not just the health side. We are going to break down the main components that underwriters are going to look at. Underwriters are humans and there can be a great deal of interpretation that two underwriters can bring to the exact same data.
Your Health
Nothing is as important to the big picture as your overall health. The second most important factor is your past health. Your current health situation will be assessed by a paramedical exam. Usually a nurse comes out and takes your height, weight, body measurements for men, blood pressure and they will draw blood. The blood can be taken as a finger stick for small amounts of coverage to a full blood draw for more coverage. The nurse will usually take three vials of blood. In addition, you will be asked to provide a specimen. That’s just a fancy way of saying pee in a cup. You will also be asked about 30 – 45 questions about your current health status and information about the past 10 years. The nurse will record all the information about past doctor visits. It is best to have the name and address about these doctors handy.
The blood work and specimen is then sent off to a lab to be analyzed. The blood work is very complete. They analyze everything from cholesterol to hepatitis. The specimen is analyzed to determine if nicotine is present or if blood is in it. You have the right to receive this information once it is completed. I have found it is more comprehensive than most physical exams. In almost every scenario, if you have visited a doctor for anything more than a cold, the insurance company is going to request your entire file from every doctor you have visited. If you have had a discussion about something with your doctor, the insurance company will find out.
Family Health
There is a section of the exam that asks about your parent’s and siblings’ health. If they have already died, they record their age and what they died from. Family history is a very strong indicator of our own mortality. If your parents lived a long time, you are predisposed to do that also. Some carriers refuse to give preferred ratings to anyone who had a parent die of cancer or heart attack before they were 60.
Hobbies
An underwriter wants to know if you participate in any dangerous avocations. Certain hobbies have potential deaths as an outcome. This leads to the thrill of many hobbies. Some of the hobbies that will require more information are scuba diving, hang gliding, parachuting, motorcycle or auto racing, flying an airplane and traveling to certain foreign countries. Not all of these are dangerous, yet they all increase the risk a life insurance claim can occur. Each has specific questions and levels of ratings that can occur with each. For instance, scuba diving once on a cruise is completely different than exploring sunken ships and caves six times a year at 120 feet or more. Jumping out of a plane once with some buddies is different from doing it every weekend. There is nothing right or wrong with any of these, the underwriter just wants to know at what level you participate and what your skill level is.
Driving Record
One of the most common life insurance claims from accidents is from auto accidents. They are indiscriminate to age or health. If you have had moving violations, DUI or any other traffic violation or wrecks usually in the last 5 – 10 years, you will need to inform them. The insurance company can request your driving record from the DMV. If you had excessive tickets or a DUI, you will not get a preferred rate until some time passes without infractions.
Occupation
High risk occupation will be looked at to determine the correct rate to charge. A demolition expert encounters more risk than an accountant. An office manager has less risk than a race car driver. Again, it is purely a matter of the risk that is involved on a day in / day out part of life.
Pricing / Classifying the Risk
All insurance companies have niches. Some like cigar smokers, some like diabetics while others really only want super clean individuals. There is a product and company that is right for all people. When all of this information is compiled, the underwriter looks at all of it in total to price the risk. Each company usually has about 15 categories of risk from super preferred to standard to rated. Rated cases are instances when carriers determine a person has a higher rate of dying in the time frame of insurance than a “standard” person. Rated cases are usually assigned a table rate. The table rate is either a number, Table 4, or letter, Table D.
Summary
Once the underwriting is completed and a classification (ex. Preferred Tobacco or Non Tobacco Table 4) has been assigned, the price of the insurance is established. Then it is the option of the person buying insurance to accept or reject the offer. One unique feature of the life insurance contract is that if you get healthier, insurance companies can and usually will lower the rate if you apply but if you get sicker, they can not raise the cost. You have all of the protection.
Everything you do and have done is taken into consideration when pricing the risk. Assuming the risk to pay out huge sums of money for a very small premium collected monthly, the insurance company has every right to inspect everything considering they are the ones on the hook if something happens to you.
© R. Allen Greer, Jr., 2007
