Underwriting is a necessary evil in the insurance industry. Necessary, because insurance companies need to assess your probability of making a claim before they go ahead and give you insurance. If they didn’t do underwriting they would have too many people make too many claims and would not be able to sustain themselves as a company without the premiums being outrageously expensive. It is evil sometimes, because they have to deny people or give them a rated premium, even if they need insurance.
All companies have different applications and underwrite a little differently, some insurers are more accepting of some things more than others. For example one company will give a better rate for smokers than other companies or one will give a better rate for someone with diabetes.
Underwriting can be done on an insurance policy at two different times. Before the policy is given to the client or when the client makes a claim (ex. passes away with life insurance). There is a huge huge difference between the two and it is important that you know and understand the differences before buying a policy.
First way – At the time of claim:
You pay for the insurance but it is NOT guaranteed that your claim will actually be paid out. Underwriting at the time of claim gives the insurance company the opportunity to look into your medical history to find evidence to deny a claim. The more time that passes before you claim the more evidence they will have. That is important to know when buying a life insurance policy upfront, never assume that because you are making the payments that you are covered.
Types of insurance where the underwriting is done at the time of claim:
- Lender mortgage life insurance.
- Group Life, Disability & Critical Illness Insurance (the insurance in your benefit plan).
- Bank “life” and “disability” insurance on loans and lines of credit.
- General insurance companies that add life insurance to your car insurance to give you a discount.
- Any insurance that makes you fill out a one page questionnaire to be “approved” for insurance.
Second Way – Before you make your first payment:
You go through a long insurance application with in-depth medical questions. The application goes to underwriting and they take their time to look into your medical history and approve or decline the insurance. Three things can happen at the end of underwriting process – you are accepted, your accepted but with a rating (pay a higher premium) or your declined. Even if you are declined at least you will know upfront without paying into a policy for years thinking your covered when your not. If your working with an insurance broker, getting a decline is not the end of the world. Depending on the reason for the rejection an insurance broker may have some other options for you to get coverage. Once approved and the policy is given to the client it is GUARANTEED to pay if you make a claim. This way you know you’re paying for insurance that will actually pay-out unlike the “at the time of claim” guys.
Underwriting at the time of issue is only available with insurance offered through a licensed life & health insurance broker like myself. If you sign up for it over the phone or with a quick questionnaire then you’re not as protected as you may think!
If you have any questions or topics you would like me to write about, please let me know in the comments below.
Andrew W. Bradley @AndrewWBradley