When you apply for life insurance, your application will go through underwriting before your coverage is approved. During this process, the insurance company evaluates your risk profile and assigns you an insurance classification based on factors like gender, age, lifestyle, and health history. Often, your premium will be determined based on your assessed risk level. For example, if you’re a smoker, you may pay higher coverage rates than a non-smoker.
Here are four common underwriting myths explained to help you better understand the underwriting process and applying for life insurance coverage.
While your health history and current medical conditions can affect how much you’ll pay for a life insurance policy, it doesn’t mean that a pre-existing condition will make you ineligible for coverage. “Many clients with one or more of pre-existing conditions could still qualify for life insurance,” says Sammons Financial Group Chief Underwriter Chris Regione. “Understanding pre-existing conditions and the severity of these is critical to underwriting. Many insurance companies take a holistic approach to risk assessment. This means they are looking for ways to offer coverage within the company’s risk appetite and tolerance.” If you have asthma, the underwriter may review when you were diagnosed, how frequently you have symptoms, if you’ve been hospitalized, and what medications you take. If you manage your asthma effectively, you may still qualify for a standard or preferred rate. However, even if you experience asthma attacks or need medical assistance, you can still be eligible for coverage, it just may be at a higher premium.
Remember that underwriting guidelines vary among insurance companies, so working with a financial professional can help find the best policy for you.
To determine your risk profile, the underwriting process can vary depending on the type of life insurance policy and amount of death benefit requested. On average, it may take two to four weeks to reach a decision. With guaranteed issue life insurance, there are often no medical exams or health questions, so that the underwriting process can take minutes to a few days. You can help streamline the underwriting process by gathering all your health information and a list of prescriptions beforehand.
Not all life insurance policies or applicants require a medical exam. “The more comfortable we can become using other sources to assess risk, the less medical exams will not always be required,” say Regione. “That said, when a medical exam is needed it is critical for risk assessment.” Guaranteed issue and simplified issue life insurance, for example, do not typically require a physical but will ask questions about your medical history and health information. While these policies may have limited coverage or higher premiums, they can offer your family some much-needed protection.
To help determine your risk profile, your application will likely ask about your lifestyle habits and hobbies, how often you participate in these activities, and what safety precautions you take. Even if you enjoy skydiving or rock climbing, it doesn’t necessarily put you out of the running for getting life insurance coverage. Since participating in high-risk jobs or hobbies can potentially affect your life expectancy, the insurance company may factor this into the cost of coverage. Many companies will still approve you for coverage, but these factors may increase your monthly premium.
Understanding how underwriting works can help make purchasing life insurance a smoother and more straightforward process. Knowing what to expect during the application and possible medical exam can help you avoid delays and lower the stress of getting approved for coverage and protecting your loved ones with the financial protection they need.