Life insurance provides coverage for your life. In case of an eventuality, the insurance company pays a death benefit to your family. So, your risk profile must be analysed before the company sells you a policy. This is where the life insurance underwriting process comes into the picture. Find out how life insurance companies check your risk profile and financial ability before issuing you a policy.
What Exactly Is Life Insurance Underwriting?
Life insurance underwriting is the process through which insurance companies analyse your risk profile. The analysis is based on multiple factors that impact the costs of coverage or denial of a policy altogether.
After you apply for life insurance, your application is sent for the underwriting process. The process helps analyse the extent of coverage you need and the policy amount. The life insurance company appoints an underwriter who looks into your application and checks your health and financial profile.
This way, an insurance provider can make necessary changes to the original quotes given to you. Usually, all types of insurance involve underwriting using the guidelines on mortality statistics calculated by actuaries. But, the process of life insurance underwriting involves a critical evaluation of your age, gender, medical history, lifestyle, hobbies and financial stability.
Why is Underwriting Important in Insurance?
The underwriting process is the foundation of the insurance sector. Before selling an insurance policy, it is crucial to know the right level of risk covered with the right premium and all the life insurance details. If the risk is not checked correctly, the insurance company will not be able to price the premium correctly. Due to this, the costs of extra risk will have to be borne by the other policyholders. Also, charging a higher premium would be unfair to the policyholder. So, life insurance without underwriting leads to losses for the insurance industry and also affects the buyers.
Types of Underwriting in Insurance
There are two broad types of underwriting in insurance which are as follows:
In the financial underwriting process, the underwriter checks the potential risk of the insurer and the amount of the policy. This ensures the coverage under the policy is adequate for the applicant’s financial circumstances and needs.
The life insurance medical underwriting process is the evaluation of the applicant’s medical history. It is a crucial step because the cost of the policy would depend on the applicant’s health risk factors. The insurance company may deny issuing life insurance to high risks applicants or offer coverage at a high premium. Under the process, the underwriter considers the lifestyle, health and demographic profile to reach an appropriate policy rate.
Thus, these are the types of underwriting risks.
How Does The Underwriting Process Work In Life Insurance?
The underwriting instruments needed by the underwriter for risk evaluation include:
- Age proof
- Proposal form
- Income documents
- Client Confidential Report (CCR)
- Questionnaire Sales Report
The documents are used to carry out the following process:
Quality check of your application
The first step of underwriting involves checking the details of your application. This step doesn’t take much time unless you miss out on any information about your medical history. So, ensure you fill in the complete details carefully.
The step includes checking the results of the paramedical examination practised when needed for health proof. The examination is like a regular health check-up. After this, the results are sent to the underwriter for analysis. The medical information includes blood tests, urine tests and measuring of height, weight and blood pressure. Blood tests reveal risks such as heart disease, diabetes, blood-related illnesses, etc.
The final rating of the insurance application
After a thorough evaluation of your application and medical and financial status, the policy is offered to you. You may suggest changes to the policy rates or accept them. The life insurance underwriting process time may include 3-8 weeks, after which you are asked to confirm the premium rate and sign the policy.
Apart from the above steps of the underwriting process, the life insurance company may request your Motor Vehicle Report from the Department of Motor Vehicles. This is done to know about your driving history. So, if you have violated traffic rules such as speed limits, you will be considered a riskier applicant.
What are Underwriting Factors in Life Insurance?
Multiple factors are considered by the underwriter to evaluate risks effectively. They have an essential role in deciding the premium costs of your life insurance policy. So, the factors the insurance company consider in the insurance underwriting process flow are
- Age: Your risk profile depends largely on age. So, if you are young, you are less risky for the insurance company than an old candidate.
- Health conditions: If you are diagnosed with a serious health condition, you have a high-risk profile which may lead to high premiums.
- Weight and body mass index: If you are overweight or obese, you may face more health problems. So, the insurance company may ask you for medical examinations to evaluate risk properly.
- Family’s medical history: If you have a family medical history, you may be prone to some diseases, making you riskier for the insurance company.
Now that you are aware of the underwriting meaning in insurance, you must go for it before buying a policy. The life insurance underwriting process is not only beneficial for the insurance company but also for you. It helps you make the right decision and buy a life insurance policy at the right premiums.
Tata AIA life insurance company offers a range of life insurance plans after a critical evaluation of your risks and needs. With a few clicks online, you can apply for a suitable insurance policy for yourself and your loved ones. So, start investing with Tata AIA today!