Please read this section carefully. It contains information that could prove very helpful to you as you consider life insurance for your family or business………..
FACT: The more you know about a situation…the less you don’t know…….
FACT: Fear of the unknown, followed typically by frustration, are both often and normal reactions to not knowing…….
FACT: Fear of the unknown and frustration can often be significantly reduced, by simply knowing more about a given situation…….
For lots of purchasers of life insurance, the underwriting process can be a very frustrating experience. This frustration is typically caused by a lack of understanding regarding all of the aspects of the process. Over the years, we have helped literally thousands of families and business owners find the right type and amount of life insurance coverage.
Of all the lessons we have learned over the years, four lessons in particular are as true today as they were 20 + years ago. Those lessons are:
Lesson #1: The vast majority of purchasers of life insurance, have very little knowledge or understanding of all that is involved, when applying for life insurance. And, as such, have very little patience for and trust in the process, the agent or the insurance carrier
Lesson #2: Most reasonable consumers are typically very appreciative and find it extremely useful when they better understand the underwriting process
Lesson #3: Many consumers (at times with bad advice from their agent) feel that the less the insurance company knows, the better chance they have of getting the coverage at an acceptable premium. Nothing could be further from the truth. Typically the more cooperative and forthcoming an individual is with information, the more the insurance company will try to help them
Lesson #4: Many insurance agents (especially the internet based services) will often show the best rate class available, knowing very little about an individual. This is very misleading and can be potentially very damaging, depending upon the circumstances surrounding the need for the coverage
This section was written in an attempt to help you better understand the life insurance underwriting process. But, before we move ahead looking at the process in greater detail, we need to mention one additional very important point:
The life insurance carrier, for relatively little premium as compared to the potential death benefit, is making a commitment to pay on your behalf, to your chosen beneficiary or beneficiaries, thousands, tens of thousands, hundreds of thousands or even millions of dollars upon your death. As such, they have both a need and a right to know as much about you as necessary to determine if you are an acceptable risk.
Life Insurance underwriting:
While they impose more underwriting requirements, fully underwritten life insurance products are typically the least expensive individual life insurance products available today. In short, the more information the carrier has about you the better offer they can typically make, unless you pose other significant health or otherwise risks.
The underwriting process helps the insurer determine the rate you will pay, based on the level of risk you pose.
Auto insurance helps illustrate the concept. Good drivers pay less for coverage than do poor drivers. Also, young drivers, who have more accidents, pay more than mature drivers. The amount of premium is based on the amount of risk.
Life insurance is similar. For instance, a cigarette smoker presents a higher risk and has a shorter life expectancy than a non-smoker. Therefore, a smoker will pay a higher premium for life insurance than will the non-smoker for the same amount and type of coverage.
When you apply for life insurance, the company will examine a number of factors based on its underwriting standards and guidelines. These factors include:
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Your current health and physical condition
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Your personal medical history
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Your family medical history
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Your income and financial history
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Your vocation. (A race car driver, for example, presents a higher risk than a bank teller.)
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Personal habits (including tobacco use and a history of alcohol or drug abuse)
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Your overall driving record and history
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Your avocations and hobbies. (Hang gliding, for example, is a high-risk pastime that could increase an applicant's premium.)
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Your age. (A 50-year-old applicant will pay a higher rate than a 30-year-old)
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Your gender. (Except in states with unisex rates; rates for women are lower than those for men since women enjoy longer life expectancies)
Once it is received by the insurance company, all personal and financial information is held in strict confidence. A specially trained underwriter will review and evaluate these factors and develop a risk profile of the applicant. This risk profile relates to the life expectancy of the individual and possible reductions due to medical history. The final premium is based on the risk profile and the risk of death.
It is important to remember that premiums are not set arbitrarily. There is a clear objectivity to the process. Risk selection must be based on actuarial projections, medical advances and expected or anticipated claims experience.
Each insurer sets its own underwriting standards of what it considers to be acceptable, insurable risks. Then each underwriting for insurance is reviewed to determine if the individual meets those standards. Here are some, but not all, rate categories:
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Super-Preferred: If you are excellent risk (i.e. in excellent health, with no dangerous hobbies or history of health problems or any family history of illnesses, etc) you may be issued at a Super-Preferred
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Preferred: If you are a better-than-average risk (i.e. in good health, with no dangerous hobbies or history of health problems or significant family history of illnesses, etc) you may be issued at a Preferred
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Standard: If you are considered an average or typical risk, (i.e. in fair health, with minimal dangerous hobbies or history of health problems or significant family history of illnesses) you may be issued at a standard rate.
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Rated: If you pose an above-average risk (perhaps you have high blood pressure, type II diabetes, smoke cigarettes, or engage in skydiving, etc), you may be classified as an increased risk and charged a higher premium
What are your options if you are rated or declined? If you are rated or declined, 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 reduced.
And remember, while your checkbook may pay the premiums, your risk profile actually “purchases” the policy. You cannot know if and how you will be approved unless you apply!
Here is some additional information. We hope you find it helpful as well!! |
