Life Insurance Underwriting Procedures
The Underwriting Criteria for our Valued Clients
Our Life Insurance Partners all have a skilled and dedicated underwriting department who carefully analyze each application
for life insurance presented to their respective home offices.
The Financial Risk Factors are: occupation, financial history, current annual income, potential income, unearned or business revenue, and net worth.
The Medical Risk Factors are: age, body type, physical condition and personal health history.
Final Underwriting decisions and determinations are based on a thorough review of the following:
The signed and dated Application Form along with any additional signed amendments or additional documents requested
A Paramedical examination in the U.S., at our expense and at your convenience:
The Life Insurance company will arrange for the exam at the applicant’s home or office or at a nearby medical clinic. The exam is performed by a Life Insurance company physician or paramedical at the insurer’s expense. During the physical exam, the physician or paramedical will:
- Take a detailed personal and family medical history
- Check blood pressure
- Listen to the heartbeat
- Check eyes, ears, and reflexes
- Inquire about recreational drug use
- Inquire about exercise habits, frequent travel, and high-risk hobbies
Obtain a urine specimen to detect the presence of an alcohol marker and to screen for drug and nicotine use, elevated sugar levels, and signs of kidney disease
Obtain a blood sample to screen for abnormal liver and kidney functions, HIV, cholesterol levels, and diabetes
Depending on the applicant’s age and the amount of coverage applied for, the applicant may be required to undergo an electrocardiogram, chest X-ray, or treadmill stress test. Additional testing of an applicant’s cognitive abilities, mobility, and frailty may be required if an applicant is older (typically, over age 70).
Attending Physician Statements from your doctor regarding your general state of health or to provide more specific information about a particular medical issue. Underwriting
will contact your doctor directly and WE will pay your doctor for this routine service. Doctors have other priorities and tend to respond slowly to requests for these statements. We may ask you to contact your doctor and request priority to avoid delay.
Background checks or financial inspection reports will be conducted. The Life Insurance Company will verify your stated income and net worth in order to ensure that the amount of insurance applied for, combined with your other in-force life insurance policies, is not in excess of your financial needs. You must qualify financially for the amount of Life Insurance you wish to purchase. Underwriters also conduct criminal background checks because of the correlation between felony convictions and shorter life expectancy.
Motor Vehicle Report (MVR) from your state’ Department of Motor Vehicles (DMV) provides Life Insurance Underwriters an important snapshot of your driving history for assessing your Life Insurance risk.
A report from the Medical Information Bureau (MIB), a non-profit trade association that maintains medical information for life insurance companies and provides clients’ medical history from HMOs, PPOs, hospitals and other medical providers to the Life Insurance Company upon signed consent and request of a coded report. If the coded reports are inconsistent with the information provided by the applicant, underwriters will, conduct
further investigation to obtain more information about the reported medical histories or conditions. Underwriters compare information in the MIB’s database against the information contained in the application prior to making an underwriting decision.
The History of Underwriting
The term underwriting derived from the manner in which the very first insurance contracts were written in the late 1600s. Sailors, merchants, and ship owners congregated at Edward Lloyd’s coffee house in London, which was a place to gather the latest shipping news. Financial bankers, in exchange for a premium, would accept some
of the risks that the sea ventures entailed. The bankers would literally write their names under the risk information shown for a particular voyage, stating the amount of risk they were willing to accept. These risk takers became known as “Underwriters” due to the practice of “writing under” the risk they would cover. Life Insurance underwriting began shortly thereafter, as insurance was purchased to cover the lives of captains and crew members traveling on insured vessels.
From these early origins, the practice of underwriting gradually developed based on companies’ experiences with claims. The first Life Insurance providers, however, had little information with which to make decisions about the probability of death and instead relied on their own judgment to determine insurability and the amount of premium to be charged. In fact, the first modern life insurance company, the London-based Society for the Assurance of Widows and Orphans, charged all insureds the same premium and was not successful. By the mid-eighteenth century, however, the first mortality statistics were used to establish premiums, and physicians were consulted to assess proposed insureds’ health conditions. These early efforts eventually led to the development of
today’s mortality tables and numerical rating systems.
Financial Underwriting for Individual Life Insurance – The Basics
Life Insurance Companies examine applicants’ financial status to determine whether a person is applying for too much life insurance. Over-insurance occurs when the amount of insurance a person owns exceeds his or her economic value. Underwriters will therefore examine a person’s income and net worth to determine whether the amount of insurance requested is justified or not. When the purpose of buying insurance is to provide for income replacement, the underwriter will look at the applicant’s current and potential earnings to determine the appropriate amount of insurance
For most life insurance applicants, the information provided in the application about income and financial needs is sufficient to determine whether the amount of insurance applied for is appropriate. In other cases, such as business situations or where extremely large amounts of coverage are requested, the insurer may require applicants
to provide financial documents such as income tax returns, buy-sell agreements, or balance sheets to verify income and to justify the amount of coverage sought.
Underwriters are also interested in determining whether the applicant can afford to pay the life insurance premium for the requested coverage. An applicant will therefore be asked about the source of funds that he or she will use to pay premiums. If a third party will be paying the premium, the applicant generally must provide a letter of explanation regarding the reason for the third-party funding to the Life Insurance Company.
Finally, life insurance underwriters will compare the amount of the premium to a person’s gross income to determine affordability. Typically, the premium should not exceed 10 to 25 percent of a person’s gross income.
Medical Underwriting for Individual Life Insurance – The Basics
Life Insurance companies establish their own medical underwriting classifications and set their standards for each as a basis for risk selection. Most Life Insurance companies have three medical risk classifications: Preferred, Standard, and Sub- Standard. The Preferred Risk is most favorable and most affordable, while a Sub- Standard Risk classification is least desirable. Most people fall into the Standard Risk category. It is the underwriter’ job to use all of the information gathered from various sources to determine whether to accept a particular applicant as a Life Insurance risk.
The Preferred Risk is reserved only for the healthiest of individuals in the general population. This usually means that the Life Insurance applicant has no adverse medical history, is not on medication for any condition, and has no personal or family history of early onset diseases such as cancer, diabetes, or other conditions.
The Preferred Risk is at an ideal weight for his or her height and has an acceptable body mass index (BMI). BMI is a measure for human body shape based on weight and height. A body mass index of 18.5 to 25 generally indicates optimum weight.
A Preferred Risk also has an excellent health history with no serious or chronic illnesses. His or her immediate family has no history of cardiovascular disease or internal cancer before the age of 60. Individuals who receive a preferred rating also have normal cholesterol and blood pressure levels.
Typically, the Preferred Risk has never smoked tobacco or has quit for at least five years. He or she does not participate in high-risk behaviors such as dangerous recreational sporting activities or have a hazardous occupation.
The Life Insurance Company also considers a person’s financial standing when assigning a risk classification, with the Preferred Risk having no recent bankruptcy. Those categorized as Preferred Risks must also have a clean driving record with few moving violations and no convictions for driving under the influence (DUIs), driving while intoxicated (DWIs), or reckless driving. Finally, the Preferred Risk has never been treated for drug or alcohol abuse.
Clearly, the preferred category is the most stringent of the underwriting risk categories, and it is awarded to applicants who are expected to live the longest.
People with average health and normal life expectancy are typically classified as Standard Risks. Their lab results are in the normal to slightly abnormal range, and their height and weight may be slightly on the high side, as may be their body mass index. Treatment for hypertension or elevated cholesterol is usually acceptable. Standard Risks may be receiving treatment for some minor medical conditions.
Generally, applicants may be placed in the Standard Risk category even if one or more parents have died from cardiovascular disease or cancer before age 60, depending on the insurer. A person who is considered a Standard Risk does not regularly use tobacco
products. Like the Preferred Risk, the Standard Risk does not participate in dangerous recreational sporting activities or have a hazardous occupation.
Financial standing is considered when underwriting all life insurance risks. While Life Insurance companies use different underwriting criteria, most insurers will typically consider bankruptcy and driving records. Generally, there is some limit on the number of moving violations, incidents of reckless driving, or license suspensions to be considered a standard risk (for example, not more than three moving violations in the past three years).
A person who is classified as a Sub-standard Risk has a life expectancy that is below average and is considered high-risk for Life Insurance purposes. The applicant’s height-to-weight ratio/weight may classify him or her as obese, and the person is likely being treated for a chronic illness or major health condition, such as a prior heart attack or cancer. Lab results are consistently abnormal.
It is important to note that a substandard rating is only one Life Insurance company’s opinion. Another Life Insurance carrier given the same information may apply a different rating and may place the applicant into either a higher or a lower rating category.
When a Life Insurance applicant has been classified as a Sub-standard Risk, he or she can still be approved for Life Insurance coverage, but the underwriter must determine the extra premium amount to be charged to lessen the insurer’s loss exposure. Insurers will typically use one of three methods to handle Sub-standard Risks: “table rating”, “rating up in age”, or a “flat extra premium”. We will contact you to explain why and how your premium has changed due to the underwriter’s determination.
In the event that the first Life Insurance company you select classifies you as a Sub-standard risk, we at Life Insurance Abroad® stand ready to re-submit your life insurance application form and medical file to our other partner life insurance companies for a counteroffer upon your approval.
Our goal, is to obtain the amount of Life Insurance protection you desire at the lowest cost possible.
Life Insurance for Expats who live some or all of the time abroad present a special risk for life insurance underwriters. These applicants generally fall into one or more of the following categories:
- Citizens of a foreign country who reside in the United States
- S. citizens and foreigners residing in a country other than the United States
- S. citizens who travel outside the United States
Foreign nationals purchasing Life Insurance for foreigners abroad include individuals who may be living in the United States but are not U.S. citizens. This group would include those with permanent resident status (i.e., U.S. Green Card holders) and those with temporary visas. Underwriters tend to look favorably upon applicants who plan to stay in the United States permanently; who can legally document their U.S. residency and who meet other underwriting requirements will be eligible for coverage.
U.S. Citizens and Foreign Residents
Life Insurance for Americans (living abroad) on either a full or part-time basis pose special problems to life insurance underwriters, as do foreign nationals who may travel to or live in the United States temporarily or on a part-time basis only. To determine whether these individuals qualify for life insurance, many factors are considered.
With respect to foreign residents who live in the United States temporarily, a Life Insurance Underwriter must first determine whether there are any U.S. governmental restrictions prohibiting insurers from issuing life insurance to residents of certain countries. If your country is not listed on the LifeInsuranceAbroad.com home page’s quote screen, then your country is excluded by our Partner Life Insurance Companies. Fortunately, our firm specializes in Ex-pat Life Insurance and our selected partners stand alone as only Life Insurance companies willing to underwrite Life Insurance for foreigners living abroad or in their home country.
Fortunately, our Life Insurance Partner Companies recognize the global nature of today’s business environment and will issue policies to individuals who live abroad, provided the medical exam and policy delivery are completed in the United States. These Life Insurance Underwriters require that the applicant have a meaningful connection to the United States before they will issue a policy, such as being employed by a U.S. company, owning assets such as a business or real estate.
How Long Does the Underwriting Process Take?
The time it takes to underwrite a particular risk for Life Insurance depends on the applicant and the amount of coverage applied for. With Life Insurance for Expats, the underwriting process may take longer due to the complexities presented by the time consuming need to examine and evaluate foreign documents and criteria.
Ex-pat Life Insurance applicants who apply for higher amounts of coverage may not receive an underwriting decision for several weeks, depending on how long it takes to receive attending physicians’ statements and other test results. We appreciate your patience. Our clients’ find that the low rates combined with the high benefits are well worth the wait.