When it comes to life insurance, most people first ask, “How much do I need?” Or even, “When should I get it?” Very rarely do they initially question “How do I get life insurance?” Depending upon your personal situation, that could be the most important factor in determining what kind you end up getting.
It’s all in the underwriting
Underwriting is one of those prevalent insurance terms that everyone throws around, but not everyone understands. Basically, it’s the process insurance companies use to determine whether or not to issue insurance to an individual—and how much. With life insurance, actuaries review a variety of personal factors to determine their likelihood of having to pay a claim to your chosen beneficiaries. Essentially, they try to calculate your life expectancy and set your rates based on that. The higher your risk, or likelihood that they’ll have to pay benefits on your life insurance policy, the more expensive your monthly cost will be. You can also be found too risky and denied coverage, altogether.
What can they take into consideration?
Among other things, your life insurance application will probably inquire about your:
- Age
- Gender
- Medical history
- Current height and weight
- Marital status
- Other existing life insurance policies
- Smoking status
- Job
- Reason for seeking life insurance (i.e. estate planning, business use, etc.)
They can also require a physical examination and/or blood tests to be performed by a licensed physician. As a part of the process, a nurse can come to your personal residence to collect the samples and survey your living situation. Some companies limit the scope of their underwriting questions to the past few years, but ongoing treatment for chronic conditions like asthma or diabetes will always be considered.
How does this affect my life insurance?
Ultimately, all of this information helps to determine if you’ll get the face amount you want—whether that’s $100,000 or $500,000—and how much you’ll have to pay in premium to get that. You always have the option to apply for a lesser amount, if you get denied for any reason. However, those denials can also be taken into account during future underwriting processes, so you don’t want to have too many on record.
Depending on the company, you’ll be assigned a certain risk level, which corresponds to pricing. Ideally, you’ll get a preferred risk rating, which typically has the lowest premiums, but requires the best health record. Below that is standard plus, where applicants have mostly good health, but also may have one or two issues like high blood pressure or being overweight. As the name would imply, a standard risk rating is the average. Neither good, nor bad, this falls right down the middle in terms of both medical history and price.
Smoking is one of those factors that weighs heavily on the underwriting process. If you’re a smoker, the best-case scenario is that you’ll be granted a preferred smoker status. This means you’re mostly healthy, apart from the fact that you smoke, so your rate increase won’t be as significant. Otherwise, you’ll be classified as a standard smoker and pay higher premiums accordingly.
These ratings are in order from least expensive to most expensive, so you’ll know how you compare. Remember, though, not all companies will evaluate risk this way. Some only distinguish between smoker and non-smoker rates. If you’re worried about your health history, ask your agent about guaranteed-issue options, which often don’t require underwriting. Since we’re a brokerage, we work with many different companies to bring you a variety of options. Call us today to find out what works best for your situation.
