A Few Words About Insurance and Underwriting

Before you can purchase certain types of life and health insurance, you must meet the insurer’s specific requirements. This process is known as risk-classification or underwriting. The underwriting process also helps the insurer to determine the rate to charge you that is appropriate for the level of risk you pose.  Premiums are not set arbitrarily! At MIB, we believe in "individual" risk selection because not all people present the same risk to an insurance company.

Underwriting is the process used by insurance companies to assess an applicant’s anticipated mortality (life expectancy) or morbidity (the chance of sickness and disease) in order to decide whether an application should be accepted, declined or issued substandard (at an extra premium or without some policy benefits or with a preexisting condition exclusion). Risk selection is based on actuarial projections and expected or anticipated claims experience.
In order to underwrite an application for insurance under the company’s underwriting standards and guidelines, the company typically examines a number of risk factors, including:  

• Your current health and physical condition.
• Your personal health history.
• Your vocation (hazardous occupation).
• Personal habits (including tobacco use and a history of alcohol or drug abuse).
• Your age. [A 50-year-old applicant will pay a higher rate than a 30-year-old.]
• Your sex. [Except in states with unisex rates; rates for women are lower than those for men since women enjoy longer life expectancies.]
• Other factors, such as aviation activities, military status, avocations, sports, driving record, total amount of insurance in force.

To examine these factors and underwrite the risk an individual poses to the company, insurance companies may use certain underwriting tools such as: 

• blood, urine, or saliva testing
• physician or hospital medical records
• prescription profiles
• telephone interviews
• financial information justifying the amount being applied for
• vocation and avocation risk information.

When personal financial and health information is received by the insurance company, it is held in strict confidence. A highly trained underwriter will review the information and develop a risk profile of the applicant. For life insurance, this risk profile relates to the life expectancy of the individual.  

Each insurer sets its own underwriting standards of what it considers to be acceptable, insurable risks. Then each application for insurance is reviewed to determine if the individual meets those standards. Here are four common categories:

• Preferred: If you are a better-than-average risk (i.e. in good health, with no dangerous hobbies or history of health problems) you may be charged a preferred or lowest rate.
• Standard: If you are considered an average or typical risk, you will be charged the standard rate.
• Rated: If you pose an above-average risk (perhaps you have high blood pressure, smoke cigarettes, or engage in skydiving every weekend), you may be classified as an increased risk and charged a higher premium.
• Declined: If you are rated as uninsurable (perhaps due to a serious illness), you may be denied coverage entirely.

If an applicant is rated or declined, he or she should remember that a rating is not always permanent. If you quit smoking, lose weight, bring down your cholesterol and blood pressure, to name just a few, your rating as an insurance risk may change and the premium may be reduced

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