Life insurance provides a vital financial safety net for your dependents and loved ones upon your passing. To secure this protection, you apply for coverage, and the insurance company, in a process known as underwriting, assesses your personal, financial, and medical information. During this assessment, they determine the level of risk and calculate the premiums you’ll pay.
In Canada, underwriting is how insurance companies evaluate the risk and profitability of offering you a life insurance policy. It enables them to gauge the extent of risk and the likelihood of complications.
In this blog post, we’ll discuss the underwriting process, address common questions, and guide you through each step of this crucial procedure.
What is Underwriting in Insurance, and How Does It Work?
Underwriting is the pivotal process in which insurance companies make crucial decisions regarding whether to grant a policy and, if so, the specific terms of that policy. This process is of utmost importance, as it serves as the means through which insurance companies gauge the risk associated with insuring an individual.
The underwriting process involves a thorough review of an applicant’s medical history, lifestyle, and various risk factors. Through this assessment, the insurance company determines whether to extend a policy to the applicant, under what conditions, and at what cost. Key factors considered include the applicant’s age, overall health, and lifestyle.
The insurance underwriting process typically commences with the submission of an application by the potential policyholder. Following this, the insurer carefully evaluates the application and may request additional documentation, such as medical records or supplementary medical examinations.
Once all pertinent information has been gathered and assessed, the insurer decides whether to issue a policy and, if so, the specific terms and conditions associated with that policy.
What is an Insurance Underwriter?
At the core of the underwriting process stands the underwriter. This professional is responsible for determining whether you qualify for coverage, specifying any exclusions or rating adjustments on your policy, and setting the premium cost.
One significant advantage of having a skilled underwriter is their ability to assist you in identifying the most suitable insurance policy for your specific needs. The role of an insurance underwriter involves evaluating your risk profile and seeking out a policy that provides optimal coverage at the most competitive price.
Furthermore, they can provide valuable guidance to ensure you comprehend the terms of your policy and receive the best value for your investment.
What Does An Underwriter Do?
The primary function of an underwriter is to assess and evaluate risk, considering factors like an applicant’s age, health, occupation, and lifestyle to gauge the likelihood of future claims. They determine the type and amount of coverage a policyholder should receive, including coverage limits, deductibles, and any special conditions or exclusions.
They also play a role in continuously monitoring and managing the risk associated with existing policies, recommending adjustments as needed.
Insurance companies like Manulife use the underwriting process to determine how likely something terrible will happen. Generally, underwriters usually look at the following factors to assess your insurance risk level:
- Age: Insurance companies usually charge lower premiums if you apply at a younger age. You would get lesser coverage if you are older and have fewer financial obligations.
- Coverage amount: Insurance companies always do more underwriting when you ask for a higher death benefit. Underwriters might use your financial details to ensure you are not requesting more coverage than you need.
- Existing coverage: Suppose you already have an existing life insurance policy. In that case, the underwriter must ensure you are not applying for more than enough insurance.
- Citizenship status: Some underwriters and insurance companies only offer policies to specific provinces. You won’t qualify for their products if you are not within their jurisdiction.
- Gender: Females get lower life insurance premiums because they live about 6-8 years longer than men. Other medical risks can also raise the premiums for any gender.
- Foreign travels: Some countries fall into the uninsurable category because of safety issues, government stability, and medical care availability.
- Health history: The healthier you are, the lower your premium rates will be.
- Insurable interest: If you are buying an insurance policy on someone else, you need to be able to prove that you would suffer financially if they passed away.
- Hobbies: The hobbies you enjoy can affect your rates, especially if you are into hobbies like skydiving and scuba diving.
- Occupation: Some jobs have higher mortality rates than others. These kinds of jobs usually have higher premiums.
What is the Process of Underwriting?
In Canada, every insurance company employs its own unique underwriting process to determine the premiums you’ll ultimately pay. Although these procedures can vary among insurers, there are several common steps followed by most underwriters.
Step 1: Apply
When you apply for life insurance, your completed application is sent to the company’s underwriters. They use this as a foundation for deciding whether to grant you coverage.
Step 2: Assessment
You must provide evidence of your insurability by answering questions and undergoing medical tests. Underwriters assess your application based on a comprehensive manual with guidelines for evaluating risk factors such as medical history, driving record, substance abuse, and extracurricular activities. For example, someone with a history of heavy drinking may be considered high risk compared to an individual with no such issues. Additionally, participation in high-risk activities like surfing or paragliding can affect the assessment.
To ensure you receive the right coverage for your needs and budget, underwriters utilize various tools, including:
- MIB Check: The Medical Information Bureau (MIB) provides information about your past medical records from previous life insurance applications to prevent fraud.
- Application Quality Check: Underwriters may conduct a phone interview to verify the accuracy of the information in your application, covering medical history, hobbies, and finances.
- Health Vitals Check and Medical Exam: A medical technician performs an examination, gathering information about your health status and conducting vital checks, including measurements like height, weight, blood pressure, blood tests, and urine tests.
- Attending Physician Check: If there are concerns about the medical exam, underwriters may request an Attending Physician Statement (APS) to gain a doctor’s perspective on your health status.
- Prescription Check: Underwriters review your prescribed medications over the last few years, confirming the details in your insurance application.
- Motor Vehicle Report (MVR): Your driving history is detailed in the MVR, encompassing traffic citations, accidents, vehicular offences, and DUI convictions up to seven years back.
- Actuarial Tables: Underwriters often refer to actuarial tables to estimate your life expectancy and risk factors based on health, smoking habits, occupation, family history, and medical diagnosis.
Step 3: Decision
The underwriting process informs you of your approval status, the amount of coverage, and the monthly premiums. You can then decide whether to accept the insurance at the provided terms and price.
How Long Does Underwriting Take?
The duration of the underwriting process can span from a matter of days to a few weeks, making it a pivotal step in securing a new insurance policy. This process serves as the insurer’s means to gauge the risk associated with insuring a prospective customer and establish the appropriate premium for the policy.
The precise timeframe for completing underwriting varies depending on the policy type and the insurance company involved, but it generally takes several weeks. Throughout this period, the insurer gathers vital information about the applicant’s medical history, driving record, and financial situation. In certain cases, a medical examination may be ordered.
Once all the necessary information has been amassed, the underwriting process concludes, and the insurer communicates the decision to the applicant.
Should I Be Worried About Underwriting?
Underwriting is a standard and necessary part of the insurance application process, and there’s no need for undue concern. It serves as a means for insurers to assess the risk associated with providing coverage, ensuring that premiums are set at an appropriate level.
While underwriting might involve thoroughly evaluating your medical history, lifestyle, and other factors, it’s primarily focused on determining the right coverage and pricing for your specific circumstances. For most applicants, this process is routine and results in issuing a suitable insurance policy.
However, your application must be transparent and accurate to facilitate a smooth underwriting process. Inaccurate or incomplete information could lead to delays or complications. If you have concerns or questions about underwriting, consider discussing them with your insurance agent or representative, who can provide guidance and clarification based on your individual situation.
Final Thoughts on What is Underwriting in Insurance
Understanding what underwriting in insurance entails is crucial in making informed decisions about your coverage. It’s the process that helps insurance companies assess risk and tailor policies to your specific needs.
As you delve into the world of insurance, remember that underwriting is here to ensure you receive the right protection at the right price.
If you have any more questions about insurance underwriting or need assistance with your insurance decisions, don’t hesitate to reach out. We’re here to help you navigate the complexities of insurance and find the perfect coverage for your peace of mind.