Life insurance underwriting guidelines are specific criteria that insurance companies use to qualify life insurance applicants. Underwriting puts policy applicants in risk categories that help insurance companies determine premiums and acceptability for coverage.
Criteria
Underwriters look at various conditions in the underwriting process including an applicant's medical history and physical condition. They look for signs of chronic illness or repeated injuries, as well as permanent diagnoses. They consider the profession and hobbies of the applicant. Applicants in high-risk jobs, such as firefighters and athletes, pose a greater risk to the insurance company. People who ski, climb mountains and skydive in their spare time receive points for high-risk behavior. Smokers almost always receive high-risk status because of their reduced life expectancy. Age and gender play a role in determining rates as well.
Risk
Each insurance company has its own guidelines that establish a risk profile for the applicant. Insurance underwriters develop a score based on the information provided on the application. The applicant is put in a category that reflects the risk status determined by the underwriter. The scores are used to project the applicant's life expectancy and the risk of early death. Life expectancy tables are based on medical research and actuarial projections.
Categories
Once applicants' scores are determined, they are assigned a category. Common categories used in life insurance underwriting include preferred customers who pose little risk based on their history and profession. Applicants who are considered rated engage in high-risk behaviors that put them in danger of disease or injury, such race car drivers. People with high blood pressure or a history of alcohol abuse also are considered high risk and charged higher premiums. Standard categories include those who pose no serious threats and are average in their behaviors. Standard rates apply to those in the standard category. Coverage may be denied to those who are terminally ill or diagnosed with life-threatening illnesses.
Ratings
Ratings can be changed, report advisors at New York Life. For example, someone who pays high premiums may request an underwriting review if she has quit smoking or lost weight. Those who can prove improvements in their condition, such as lowered cholesterol readings or reduced blood pressure often may be reclassified and offered lower insurance premiums.
Accuracy
According to the U.S. Bureau of Labor Statistics, a successful underwriter is one who can make the most accurate underwriting determinations. An insurance company that has too liberal underwriting guidelines may end up paying an excessive amount of claims, while those that are too restrictive will lose business to more liberal competitors. Underwriters use sophisticated underwriting software coupled with investigative techniques to make the most accurate determinations.
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