How to Understand Life Insurance Underwriting

Defining Life Insurance Underwriting in Plain English

To qualify for traditional life insurance (even if you get life insurance without medical exams), your policy will be “underwritten.” The underwriting process is simply what the life insurance company does as it reviews your application in order to come to a decision on whether they should approve you or not. 

Underwriting, as a system, is crucial for life insurance companies who seek to profit while they financially protect the people you love from the most unfortunate things that happen. It helps them stay fully operational and stocked with funds to dispense their customers. Without underwriting, only those with a terminal illness or a short expectancy would buy life insurance for a definite, quick payout for their families. 

While not all policies require or ask for medical histories and significant health data beyond simple questionnaires, underwriting does not always limit itself to your physical condition. Instead, underwriting can also look at the relationship and status of your finances, legal activity, insurance history, and other risk factors.

Let’s consider these factors and how they might play out during your own underwriting process as you seek life insurance coverage at the fairest rate and highest value.

Medical Information

You probably already realize the importance of analyzing your health when making the choice to extend policy coverage to a life insurance applicant. An applicant that stays fit, healthy, and active will earn the life insurance company much more money than the one that quickly falls into illness and passes away. 

This is even more clear when you consider the popularity of term-based policies that are good for a certain number of years until the insured loses its coverage at the end of the term. The vast majority of these policies never activate death benefit payments. In fact, more than 95 percent of these policies have the insured age out of the policy (unless they choose to renew).

Just because health is more financially lucrative doesn’t mean that you can’t be insured by a life insurance company if you have less-than-ideal medical problems. Many health conditions are actually covered with the willingness to pay higher premiums than a healthier applicant might get a quote for. 

Financial Status

Issuing a policy to an applicant takes with it a considerable amount of time, energy, and expense to evaluate applicants before they sign up for a plan. If they see that an applicant might not truly have the resources (or history) to pay for the coverage in the long run, they may deny the claim during the underwriting process. 

Included in this, bad debts, bankruptcies, liens, and other blemishes on credit histories and financial records may mean a significant challenge—even for the otherwise healthy and insurance-ready applicant. 

Criminal History

Insurance companies take a look at legal trouble because it indicates a risk to their earnings rather than because they wish to make things difficult for the accused and rehabilitated. With reference to violent crime, for example, an applicant convicted of assault may be statistically more likely to commit an offense again.

The risk of another offense may be that they are unable to make premiums after a conviction, obviously, but also that they may get into a situation that results in their death. Either of these possibilities represents a moment for the underwriter to pause in their analysis of the application and consider carefully other elements of the application to outweigh it. 

Insurance Past

If you have applied for or held life insurance in the past with another insurance carrier, your underwriter has access to this information. They can see if you have applied, how often you have applied, whether you were approved, and what other insurance companies determined about your application, such as health ratings.

Each person can only be insured up to a certain point, so seeing other applications is important for insurance companies to share information. If you applied for life insurance from many different companies, it may signal the insurer to take another look at your application for further red flags and concerns. 

Apply with Sproutt

Underwriting is simple to understand and complex to undertake. If you’re ready to see what life insurance companies are willing to offer you, Sproutt can help you choose a trusted insurer so you get life insurance with smooth underwriting. 

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