How life insurance underwriting works
Key takeaways
04 · ideas- Underwriting evaluates age, health, family history, and lifestyle
- Preferred Plus applicants can pay significantly less than Standard applicants
- No-exam policies exist but typically cost more per dollar of coverage
- A 10-year age difference roughly doubles the premium for term insurance
Underwriting is the process by which an insurer evaluates an applicant's risk and assigns a corresponding premium.
Main factors evaluated:
Age: The most predictable factor. Mortality risk increases with age, so premiums increase with age. A 35-year-old typically pays roughly half the premium of a 45-year-old for the same coverage.
Health status: Medical exam results, health records, and medical history. Conditions like diabetes, heart disease, and certain cancers affect risk classification.
Family medical history: Hereditary conditions in immediate family members are considered.
Lifestyle and occupation: Smoking, tobacco use, and hazardous occupations can increase premiums significantly.
Risk classes: Insurers assign applicants to risk classes determining the premium. Common classes: Preferred Plus (best rates), Preferred, Standard Plus, Standard, and substandard ratings.