Underwriting is the process an insurer uses to evaluate a risk and decide whether to offer coverage and on what terms. On a life insurance application it is more involved than on most other personal lines, because the insurer is pricing a commitment that may run for decades.
Knowing what happens between application and offer removes most of the anxiety about it.
What gets collected
Regulators describe the traditional life underwriting data set as including several distinct pieces:
- The application itself, covering medical history, prescriptions, occupation, avocations such as aviation or diving, travel, tobacco use, driving history, and a financial profile
- A telephone interview, in which an interviewer confirms and expands on the application answers
- A paramedical or medical exam, sometimes including an electrocardiogram
- Fluids testing, typically blood and urine, and a swab or saliva test for nicotine
- Medical Information Bureau data
- A motor vehicle record
- Prescription drug history from pharmacy benefit databases
- An attending physician statement, requested from your own doctor where the file needs it
- Financial and tax information, where the amount applied for requires it
Not every application triggers every item. What gets ordered depends on the amount of coverage, your age, and what the earlier steps turn up.
The paramedical exam
The exam is usually done by a paramedical examiner at your home or workplace, scheduled at your convenience, and it typically takes well under an hour.
What it commonly includes:
- Height, weight and blood pressure
- Pulse
- A blood draw and a urine sample
- A brief health history questionnaire, repeating and expanding on the application
- For larger amounts or older applicants, an electrocardiogram or a treadmill test
The fluids testing looks for markers of conditions relevant to mortality, including cholesterol and lipids, blood sugar and markers of diabetes, kidney and liver function indicators, nicotine and cotinine, and certain drugs. Insurers may also test for markers of conditions you have not been diagnosed with.
Practical points: exams are typically scheduled in the morning, and examiners commonly ask that you fast beforehand, avoid heavy exercise the day before, and avoid nicotine and alcohol. Follow the instructions you are given, since a result skewed by circumstance can put you in a worse rate class than your actual health warrants. You are generally entitled to a copy of your results on request.
The Medical Information Bureau
MIB is a consortium of North American life insurers that maintains coded information used in underwriting. It is widely misunderstood, so the limits are worth stating precisely.
What it is: a set of broad, general codes reflecting medical histories or conditions reported on prior insurance applications, used to alert underwriters to possible errors, omissions or misrepresentations.
What it is not: a repository of your medical file. Actual medical records, paramedical reports, attending physician statements, lab results, x-rays and electrocardiograms are not stored in the MIB underwriting database, and the codes alone do not contain enough detail for an underwriter to approve, decline or rate an application.
You will not have an MIB consumer file unless you have applied for individually underwritten life, health, disability, critical illness or long-term care insurance within roughly the past seven years. You can request your own file directly from MIB, and doing so before applying is a reasonable step if you suspect an error.
Rate classes
Underwriting output is a rate class, which determines pricing. The exact class names and definitions are set by each insurer, so the same person can land in differently named classes at different companies.
The general structure:
- Preferred classes, sometimes with more than one tier, for applicants meeting the insurer's most favorable health and lifestyle criteria
- Standard, for applicants presenting typical risk
- Substandard or rated classes, for applicants whose health or history presents higher than typical risk. These are often expressed as a table rating.
- Tobacco and non-tobacco distinctions, applied across the classes above
- Decline or postpone, where the insurer will not offer coverage, or will not offer it yet
Some products, particularly those with limited underwriting requirements, collapse preferred and standard into a single class and do not offer rated classes at all. That is part of the trade discussed in no-exam, simplified issue and guaranteed issue.
Because underwriting guidelines are proprietary and differ between insurers, the same medical history can produce meaningfully different outcomes at different companies. That is one of the more concrete reasons to work with someone who knows several markets.
Accelerated underwriting
Many insurers now use accelerated underwriting to eliminate the exam for qualifying applicants, relying instead on the application, MIB data, prescription history and motor vehicle records, sometimes producing a decision in hours rather than weeks.
Two caveats regulators highlight:
- It does not always finish that way. Where the available data is insufficient to evaluate the risk, the case falls out of the accelerated path and the applicant must complete traditional underwriting, including the exam.
- Insurers audit these programs, including post-issue review of medical records, to check that the accelerated decision matches what full underwriting would have produced.
Answering the application accurately
This is the single most consequential thing an applicant controls.
Answers on the application are the basis on which the policy is issued. If a material misrepresentation is discovered during the contestability period, the insurer may contest a claim. That period, generally two years and state-specific, is covered in the contestability period and what can void a policy.
Practical guidance:
- Disclose conditions, medications and history fully, including things you assume are disqualifying. Underwriters see managed conditions constantly, and a well-controlled condition with documentation often produces a better outcome than a gap in the record.
- Do not guess at dates or diagnoses. Say you are unsure rather than inventing specifics.
- Answer tobacco questions honestly. Nicotine testing is routine.
- Review the completed application before signing, including anything an agent filled in on your behalf. Your signature attests to the answers.
- Report changes in health that occur between application and policy delivery, which the application typically requires.
What happens after the decision
You may be offered the class you applied for, a different class, coverage with an exclusion or rating, or a decline. A counteroffer at a different class is common and you are not obliged to accept it.
If you are declined or rated, ask why. Insurers generally must tell you the reason and how to obtain the underlying information. Corrections are possible where the file contains an error, and reconsideration is often possible after a period of documented improvement.
Underwriting guidelines, exam requirements, rate class definitions and pricing vary by insurer and by state. For questions about your own application, the insurer, a licensed agent, or your state Department of Insurance can help.
To get connected with licensed carriers and agents who write life insurance in your state, you can request life insurance quotes.