Inside Scoop on the Life Insurance Underwriting Process
Article by Mark Manderson
How can it take six weeks to process a life insurance application?! It took only a few minutes to fill out, right? Well, contrary to our visions of a bunch of suits cogitating and throwing tape balls at miniature basketball hoops for a month, most of the time that you spend waiting on a response from an insurance company the insurance company spends waiting on responses from your medical caregivers. Let’s look at what the underwriting process involves…
Underwriters are the life insurance workers that review applications and determine what rate class (a.k.a. “health class”) the individual whose life the applicant wishes to cover ought to hold (let’s call him the “proposed insured”). For example, an individual with a high mortality risk will be awarded a sub-standard class. The rate class is put through a formula with other data, including age, sex, and policy value to calculate the price an applicant pays. (Sometimes, the result of an underwriter’s calculations is that the company simply cannot afford to cover the proposed insured at all.)
The four rate classes which are common to most insurers are: Best, Preferred Plus, Preferred, and Standard (nomenclature varies from company to company, however). Below Standard are ten more expensive rate classes named Tables 1-10.
Assigning a rate class to an individual takes more than just the information held in a life insurance application. The underwriter handling your case will request data from third party professionals. The application, medical exam, medical records, family history, and an APS (attending physician’s statement) are the primary evidences used to evaluate a proposed insured’s mortality risk. Notwithstanding, an underwriter may consider any source of information that gives a clue to insurability, including credit history and driving record.
Money-saving tip: Underwriters are not obliged to study all the information that’s available to them; in fact, it’s most profitable for them to blitz through the easy-to-rate cases. If you believe that the rate class you’ve been offered is not as favorable as your proposed insured merits, you may be able to get a better rate class by providing your agent with further information, which he/she may pass on to the underwriters. Something as trifling as knowing that a proposed insured walks his dog every day for exercise may tip the scales.
What’s this about an attending physician’s statement? You might have rightly guessed already that it’s a testament from a medical caregiver about the condition and/or prognosis of a patient. What you might not have known is that an attending physician’s statement (or “APS”) can be quite a long document, and a time-consuming one, at that. By far, most of the time in the underwriting process is spend waiting on APS’ and medical records. What sort of majority are we talking about here? Consider that a no-exam life insurance policy can go from quotes to in-force in 10 minutes.
No-exam life insurance (a.k.a. “non-medical issue”) includes simplified issue, guaranteed issue, and graded benefit life insurance. Although its expeditiousness makes it appealing, it is much more expensive than ordinary life insurance. It is primarily of use to applicants who wish to insure individuals with health problems that have rendered them “uninsurable” under ordinary policies.
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