What is Life Insurance Underwriting?

Medical Underwriting to Qualify for Life Insurance

You might have heard of the term underwriting before, but most Canadians don’t really know what it means. Underwriting is the process by which an insurance company assess risk and determines the appropriate premium.

Assessing risk and charging premiums have many variables that go into the equation. There is room for human error as the job of an underwriter requires both analysis and intuition. A very important factor is how well your insurance broker completes the application and how detailed the information is so the underwriter has a good idea about your health and other risk factors.

What do insurance companies need to underwrite life insurance?

An insurance company needs medical evidence, financial information and information about your job duties to properly underwrite you. The most important thing is the medical evidence for life insurance (on a disability insurance policy your job duties and occupational risk also play a major role in determining your premium). How healthy or unhealthy you are today is the most probable indicator of whether or not you will live a longer or shorter life.

Your medical evidence is capture in a few different ways:

• Your licensed life insurance broker will ask you a series of medical questions and dig deeper into the causes of any health conditions you might have.
• A paramedical test is often done, where a paramedical technician comes to your house or place of work and collects blood, urine, height, weight and blood pressure readings and asks many of the same medical questions over again (double checking the work of the insurance broker).
• If there are health conditions that need more explanation the insurance company will request a doctor’s report (Attending Physicians Statement or APS) to get more detail and clarification on the issue.
• For large amounts of insurance or if the client is older, a full doctors medical might be ordered where a doctor authorized by the insurance company conducts a complete physical on the person to be insured.

Only if you are applying for very large amounts of life insurance does the insurance company need financial information. A basic declaration about your income is sufficient unless you want more than about 20 times your annual earnings. For example, if you made $100,000 per year you can easily apply for $2 million of life insurance (from all sources) before they would start to ask why you need so much coverage.

Occupational risk is a factor for some life insurance applications. It all depends on how risky your job is. If you work on an off-shore oil platform, where you need to take helicopter rides through stormy seas just to get on and off the rig, an insurance company might not like that too much. The vast majority of jobs Canadians have are not considered risky – even fire fighters and police officers pay standard rates for life insurance.

High risk activities can cause a problem in underwriting

Your hobby, sport, or fun past-time is called your avocation for underwriting purposes. Many avocations are risky behaviours and can cause problems in underwriting. Dangerous sports like back country skiing or snowmobiling, hand gliding, mountain climbing, etc. are all going to be carefully looked at by an underwriter. Flying aircraft as a hobby (an even sometimes as a profession) is considered dangerous. Racing motorized vehicles is taboo.

You can expect to either have you policy rated for extra premium for these activities or have them excluded from the policy. If, for instance, you like to skydive, your life insurance policy will cover you for all types of death except if you died during a skydiving jump. That is an example of an exclusion.

How to avoid problems or errors through underwriting

Be sure your insurance broker does an excellent job of field underwriting. That is, he/she goes through all the medical questions thoroughly and gets additional information whenever you say YES to a medical question. Next, be prepared for the paramedical exam so that you put your best foot forward. Here are my 8 tips to being well prepared for the paramedical exam:

• fast for 10 hours minimum – only water (no juice, coffee or any food)
• mornings are often the best time to complete the test – low stress time of day
• eat healthy the day before
• taking fibre a few days before the test is good, as it can actually reduce blood cholesterol readings
• drink lots of water
• no alcohol for 24-48 hours before the test
• no heavy workouts the day before, as your body will be in recovery mode the next day, and have excessive proteins in the blood
• if you get sick with a cold or flu, rebook the appointment

If a doctor’s report is likely to be required, and your insurance broker should have a good idea beforehand if one will be needed, let your doctor’s office know this might be coming through. Ask them if the doctor can please complete the doctor’s report as soon as possible (one of the biggest delays in the underwriting process is getting doctor’s reports sent in).

Outcomes from the insurance application underwriting process

There are four possible outcomes when applying for life insurance once the underwriter has completed assessing your application for life insurance:

• You are in excellent health and are awarded Preferred Rates – a discount on your premiums.
• You are in normal health for a person your age and are give Standard Rates – the base price for the policy.
• Your health, avocation or occupation presents extra risk and you get Substandard Rates (also called a Rated policy) – you are charged more for your insurance coverage.
• You are Declined because your risks are too great and the insurance company is not able to take on the risk for any amount of premium.

Life Guard Insurance can help you shop for the best rates

Our insurance brokers at Life Guard Insurance know that different insurance companies treat risks differently. You might be too heavy for one company and a standard risk for another. We are able to shop the market to find you the best rates on life and health insurance because we have access to all of Canada’s major life insurance companies. Contact us today and we will walk you through the underwriting process.

The article was written by +Mitch Reynolds. If you found this article interesting or it made you think, please feel free to share your comments below. Liking us on Facebook, giving us a +1 on Google or Tweeting this article about insurance underwriting would also be very much appreciated.

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