Life insurance underwriting: What to expect

How do life insurance companies decide whether or not to approve you for a life insurance policy? And if approved, how do they decide how much coverage (death benefit) you are eligible for and what your monthly insurance premium will be? These questions are answered via a process known as “life insurance underwriting.” Here, you’ll learn:

• Medical, financial, and personal factors that affect the decision

• What happens during the underwriting process

• What’s involved in a life insurance application and medical exam

• Red flags that could result in rejection of a life insurance application

What is underwriting?

Almost all life insurance applications are subject to an underwriting process in which the insurance company assesses the risk involved in insuring the applicant and determines the terms of various life insurance policies. A wide range of data points may be reviewed, including personal information (gender, age, occupation, lifestyle, hobbies, motor vehicle report), individual and family medical history, current health conditions, smoking habits, financial information, and more, including a medical exam. Some policies may require less information, but the only type of coverage with no underwriting risk assessment is "guaranteed issue" life insurance which features guaranteed acceptance and generally a low death benefit – typically only enough to cover a funeral and other final expense.

Based on the risk assessment, the underwriter will either approve or reject the applicant for coverage and – if approved – determine how much coverage and at what price. As one might imagine, the more risk the insurance company must assume, the more expensive the policy will be. In simplest terms - all things being equal - a 50-year-old smoker with medical issues can expect to pay higher premiums than a 30-year-old non-smoker in good health. And the riskiest applicants may have trouble getting approved at all. That is why it's important to be familiar with the life insurance underwriting process before submitting an application for coverage. If you know what to expect during the application and medical exam, you can help save time, reduce stress and – with a little bit of preparation and forethought – may even increase your chances of getting approved for the level of coverage you want at cost-effective rate.

Traditional underwriting or fluid less underwriting?

Traditional underwriting generally involves the completion of both a life insurance application and a health exam that may include collecting a blood or urine sample. That said, some insurers offer what is known as “fluidless underwriting” or "accelerated underwriting”. As the term implies, this process helps to streamline underwriting by eliminating the exam and collection of blood and/or urine samples. Instead, it uses technologies such as algorithms and mortality modeling to determine the applicant's risk profile. Fluidless underwriting is not available from all insurance companies or for every type of policy. Also, applicants must typically be in good health and under the age of 60 to qualify.

The application and underwriting process

Though different life insurance policies have varying requirements during the application and underwriting process, most applicants will be required to complete a life insurance application and a health exam. In addition, you will probably have to sign HIPAA-compliant and other consent forms giving the insurance underwriter permission to access your medical records and prescription history, driving record, credit history, public records, and financial statements. The insurance company will access some or all of this data during their underwriting, and it's important to be as honest in your disclosures as possible. Misstatements – whether purposeful or accidental – may not only jeopardize your ability to get approved for coverage, but in some cases, they could also render your insurance policy void in the event of your death.

Your life insurance application

The insurance underwriter will consider both your health history and lifestyle information, so your application will likely cover some or all of the following:

• Family medical history

• Personal medical history

• Prescription history

• Current and previous doctors’ contact information

• Motor vehicle report

• Occupation (which helps assess occupational hazards)

• Credit history

• Hobbies (some activities, like scuba diving, are associated with increased mortality)

• International travel plans (travel to war zones or areas with high rates of infectious disease can be a risk)

To help save time and avoid delays, make sure you have the following information and documentation available before you begin filling out your application: A copy of your driver's license or other photo ID; a list of prescriptions, including the dosage amounts; names of any doctors you've seen in recent years (typically 5 years); description and dates of any surgeries you've had in recent years.

The medical exam

In addition to looking into your medical history, most insurance companies will require a snapshot of your current health status and ask you to undergo a brief health exam – often performed at your home or office. This is a crucial step in evaluating your insurability and premium rates. The exam typically includes the following:

• Recording your weight, height, and body mass index (BMI)

• Taking your vital signs – including pulse and blood pressure

• Provision of a urine sample

• A blood test to check for various health issues, including but not necessarily limited to nicotine and drug use, cholesterol level, and blood sugar level

• Some applicants may also have to undergo an electrocardiogram (EKG), x-rays, a treadmill stress test, and/or a cognitive ability test

How to prepare for your medical exam

There’s not a lot you can do to prepare for the medical portion of your application – as you can’t make significant improvements to your health in a short amount of time – but there are some steps you can take to help ensure the best possible results:

The week before your exam:

• Eat Healthily: Limit high-cholesterol foods, salt, sugar, fat, and any food that may exacerbate a risk factor.

• Avoid non-essential over-the-counter medications such as antihistamines and decongestants, which can raise blood pressure and glucose levels.

• Avoid alcohol which can negatively impact liver enzymes and cause dehydration.

• Increase your water intake: Being well-hydrated flushes toxins in your body that may impact your blood and urine samples. Being well-hydrated will also help with your blood draw.

12-24 Hours before your exam:

• Avoid strenuous exercise, which can negatively impact your blood pressure and cholesterol levels

• Go to bed early: A good night’s sleep can help improve your vitals.

Day of exam:

• Schedule it early in the day, if possible

• Avoid caffeine

• Avoid food and drink (except water) – even if fasting is not required

• Drink a glass of water shortly before your exam

• Wear lightweight clothing (for your weigh-in)

Next steps in the underwriting process

Underwriting can take as little as 24 hours but could last 4 to 6 weeks. The more extensive the policy, generally the more detailed and time-consuming the process. During that time, the underwriter will review the details of your application and the results of your health exam. The underwriter will then use this data to assess your life expectancy and determine your life insurance risk class and classification. This will then determine the amount of coverage allowable and the monthly premium. Classifications vary somewhat by insurance company, but "Preferred Plus" is the name typically given to the class that qualifies for the most favorable policy terms. Others may include:

• Preferred Plus: excellent health, ideal height/weight ratio, clean family history

• Preferred: Very good health, minor health conditions

• Standard Plus: Good health, not ideal height/weight ratio, good family history

• Standard: Not ideal height/weight ratio, complicated family history

• Table Ratings: Serious health issues and/or serious obesity

• Tobacco/Smoker Ratings: Have used tobacco or nicotine products within the past 12 months (On average, premium costs for these ratings are up to three times higher than their non-tobacco equivalents.)

Red flags for underwriters

While every life insurance company has its own criteria for the underwriting process, most share the same general underwriting guidelines regarding "red flags." These risk factors may lead the insurer to limit the amount of coverage offered, increase the life insurance rate or reject an application altogether. Key among them are smoking habits and a medical history that includes a serious or life-threatening illness such as diabetes, heart disease, cancer, HIV/AIDs, or blood-borne illnesses. Other such items that may impact your insurability include:

• Obesity: Generally, body mass index (BMI) over 40 will lead insurers to request further medical information. BMI over 45 often leads to rejection of the application.

• Uncontrolled blood pressure: Most insurance companies will insure you if it is high but controlled by medication. Erratic or untreated pressure may lead to rejection.

• Travel: Insurers may reject an application if the applicant plans to travel to an unsafe or unstable region.

• Alcohol use: Above average consumption – even 3 or 4 beers a day - will probably lead to higher premiums. Heavier drinking may lead to rejection of the application.

• Drug use: Use of drugs such as cocaine, crack, or heroin will automatically lead to rejection. Marijuana usage is handled differently among insurance carriers.

• Risky hobbies: Dangerous recreational activities such as skydiving or car racing may lead to substantially higher premiums or, in some cases, rejection of the application.

• Risky occupations: Applicants with dangerous jobs, such as pilots and police bomb technicians, may have to get coverage from specialized carriers or employer plans.

• Poor driving record: A history of reckless or impaired driving may lead some insurers to reject an application

If you have one of these conditions, it doesn't mean you can't get coverage. However, your choices may be limited, and your insurance premium may be somewhat higher. But keep in mind that as medicine advances, new options may open up. For example, an HIV diagnosis once made it impossible to get medically-underwritten coverage. Still, some life insurance companies, including Guardian, will now write policies for certain applicants with an HIV diagnosis and other conditions.

Tips for high-risk applicants

People with a controlled or minor health issue get approved for life insurance policies every day. However, if you have a health history or conditions that might make it difficult to "pass" a required medical exam, you have two main options. Option one is to apply for a simplified issue policy – which will be underwritten using a less exhaustive application and doesn’t require any medical exam. Be aware: Simplified issue policies usually have lower coverage maximums and higher premiums. But if you are ineligible for a standard life insurance policy, they may be worth looking into.Another option – if you are working – is to buy life insurance through an employer-sponsored life insurance plan. These plans usually feature cost-effective group rates and may not require medical exams (unless you apply for coverage over a certain limit).

Find out more

If you are planning to apply for life insurance coverage and have questions or concerns, consider talking to an experienced professional. If you don't have someone to discuss insurance with, Guardian can help you find a nearby financial professional who will take the time to learn about your situation and present you with answers and options to help ease the process.