How life insurance underwriting works

Underwriting is the process an insurer uses to decide whether to issue a life insurance policy and what to charge for it. The company gathers information about your health, habits, finances and history, estimates how likely you are to die during the coverage period compared with other applicants, and then offers a price (a rate class), offers different terms, postpones, or declines.

The reason is simple. Life insurance premiums are pooled, so the insurer needs to charge healthier people less and higher-risk people more. Otherwise the people most likely to claim would be the ones most eager to buy, a problem called adverse selection. Underwriting is the filter against it.

What an underwriter looks at

An underwriter (a person, an automated rules engine, or both) draws on several sources. Practice varies by insurer and by policy, but most full reviews combine the following.

Not every policy uses every source. A small term policy may rely on the application plus database checks. A large policy for an older applicant may add an exam, an electrocardiogram and doctors' records.

The steps, in order

1. You apply. An agent or an online form walks you through the questions. Answer completely and accurately; the application becomes part of the contract (see the questions on a life insurance application).
2. The insurer decides what evidence it needs. Age, amount of coverage and your answers drive the requirements. Younger applicants buying modest amounts often face fewer; some qualify to skip the exam (see accelerated underwriting: approval without an exam).
3. Evidence is collected. A paramedical exam is scheduled, database reports are ordered, and you may be asked to sign a records authorization.
4. The underwriter reviews the file. If records raise questions, the file can stall until a doctor's office responds, which is the most common cause of delays.
5. A decision is made. The insurer issues an offer, sometimes at a different rate class than you applied for, or it declines or postpones.
6. You accept and pay. Coverage typically begins when the policy is delivered and the first premium is paid. Some applications come with temporary coverage while underwriting is pending, under conditions stated in the receipt.

How long this takes depends on the evidence required. Fully underwritten policies often take several weeks, and automated approvals can be much faster; how long it takes to get life insurance covers timelines.

The possible outcomes

• Approved as applied. You get the rate class you requested, typically a preferred or standard class.
• Approved at a different rate class. Your results fall short of the class you applied for, so you are offered a higher-priced one (see life insurance rate classes: preferred plus to substandard).
• Approved with a rating. The insurer accepts the risk but adds a table rating or flat extra (see table ratings and flat extras explained).
• Approved with a limit or exclusion. Less common on standard term policies, but possible for specific risks such as an aviation or hazardous-activity exclusion.
• Postponed. The insurer asks you to reapply after a set time, for example after recovering from a surgery (see postponed application: why insurers make you wait).
• Declined. The insurer will not offer coverage. Another company may still, since underwriting guidelines differ (see Declined for life insurance? What to do next).

Your rights during underwriting

Several of the reports an insurer orders are consumer reports under the federal Fair Credit Reporting Act (FCRA). That gives you the right to request your own file and to dispute errors. If the insurer takes an adverse action based on one of these reports, it is required to tell you which reporting agency was used and that you can request a free copy. The MIB and prescription-history guides explain how to ask. State insurance privacy laws add their own notice requirements.

Why different insurers can reach different answers

Underwriting is not a single national standard. Each insurer sets its own guidelines, often shaped by its reinsurers, on how to treat a given condition, how much weight to place on build or blood pressure, and how it defines tobacco use. Someone declined or rated by one company can be accepted at a better class by another. That is why shopping several insurers, or working with an independent agent who can approach many, is common for applicants with health history. Honest disclosure matters across all of them: misstatements can lead to a denied claim during the the two-year contestability period (see what happens if you lie on a life insurance application).

Practical ways to prepare

• Know your medications, doses and diagnoses, including approximate dates.
• Gather names and addresses of doctors you have seen in the last several years.
• Do not change tobacco status on paper only; insurers test for nicotine.
• If you are close to a height-and-weight or blood pressure threshold, ask your agent how the insurer treats it before you apply, since each application can leave an inquiry trace in the MIB database.
• Read the offer carefully. If the class is lower than expected, ask the agent why and whether another insurer might view your case differently.

Key takeaways

• Underwriting is the insurer's risk review; it decides whether you are covered and at what price.
• Evidence can include the application, an exam with labs, the MIB report, prescription history, driving records and doctors' records.
• Outcomes range from approval as applied to a rating, postponement or decline.
• Many underwriting reports are FCRA consumer reports, so you can get copies and dispute errors.
• Insurers' guidelines differ, so a poor result at one company does not predict every company's answer.