What is Underwriting?
Have you ever wondered how insurance companies decide how to rate your application and determine the premiums you pay for life insurance? The term that is used for this process is called underwriting and it is through this process that your application is assessed.
Once you have decided to take out life insurance, your selected insurance company commences the underwriting process which determines the risk you are to that insurance company and hence the cost of the life cover. This is based on the type of policy you have selected, the total insured value and your responses to the medical questions asked.
Not all insurance polices require you to answer in depth medical questions or take part in a medical exam. This form the basis of the underwriting polices of different insurance companies and is determined on the type of policy requested. For example if guaranteed life is requested, the amount of cover is reduced and it is based on limited number of medical questions and no request for information from your doctor.
For higher sums insured, whole life policies and cheaper premiums, then your doctor maybe contacted and the a medical exam requested.
Life Insurance company ratings
At the core of the underwriting principle is the concept of insurance company ratings. These can vary from company to company, but as a general rule of thumb there are three types of ratings:
These are people in excellent health with a normal height to weight ratio.Family history has been looked into and there have been no deaths due to any hereditary illnesses such as heart disease at an early age. Some insurance companies have other models and may well have additional level of ratings.
Here you may well be in good health, but have some associated factors that mean you are a slightly higher risk than the select rating.
This rating doesn’t mean you are in poor health. It is used for people who may not have the standard height to weight ratio or have been a past smoker or drink more than the standard units. It could also relate to family history or past medical problems.
The ratings above would typically apply to non-smokers. Smokers are a greater risk to insurance companies and hence there premiums will be higher.
Of course you can question an insurance company over the risk rating that may have been applied to you or check with other insurers to see how they might rate you. Remember the most important part of this is to ensure that you have life insurance in force as we don’t know what is around the corner. Its is possible to compare term life insurance rates and permanent insurance rates for a comparission.