Underwriting Your Life

Life Insurance industry veteran Sandi Saksena explains the process and need for  underwriting as well as its newfound value in a growing atmosphere of declining health.

 

In the realm of life insurance, underwriting is the process of deciding which category or ‘risk class’ is most appropriate for the proposed insured. This decision is based on factors such as age, gender, current physical condition, medical history, financial background, personal habits, profession, and even relevant hobbies. For example, if you skydive as a hobby, you are considered a higher risk than someone who feels that walking in the park is about as adventurous as it gets!

 

Having spent the past 20 years in the business of life insurance, I have had my fair share of underwriting issues and managing the expectations of my clients. As I matured in the field, I came to realize that while a client might feel singled out and assume that the insurance company wants more money, in actuality that’s not the case.

 

Underwriting for life insurance is not only an important process for the person who wants to get this type of cover, but also an integral process for the insurance company.

 

If the underwriters do an inefficient job and quote very high premiums, the insurance provider stands to lose out on a lot of clients to competitors with a superior process. Similarly, if the underwriters undercut a client’s risk and quote lower premiums, the insurance company stands to lose a great deal of money by covering high-risk individuals at lower rates. Underwriting is therefore a task that affects both the applicants and the providers.

 

Underwriters have to approach their task with dispassionate, logical precision. Much like a lawyer, they have to rely on evidence and extrapolate based on the likes of actuarial tables and probabilities.

 

Look at almost any life insurance premium chart, the one thing that stands out is that life insurance is more expensive for men than for women. There are several reasons for this, and they all have to do with risk. Simply put, men are considered to be a higher risk to insurance companies than women.

 

By categorizing individuals into the right risk classes, insurers are able to keep premiums down, making life insurance more affordable for the vast majority of applicants.

 

Insurance risk classes are based on large groups of people with similar characteristics, and risk classes are based on the mortality of the group. So your specific mortality may be different from the larger group and the coverage is not a direct reflection of your personal health. Approximately 93% of applicants that go through the underwriting process will not experience any difficulty and will end up paying the standard premium rates for their life insurance.

 

People who have a higher risk of developing chronic illness or who work in high-risk occupations are usually required to complete additional forms and may be asked to pay an extra premium.

 

Decisions made in underwriting can result in various outcomes of insurance coverage: Preferred: A better than average risk, charged preferred or lower rates.

Standard: A standard or typical risk, charged the standard rate.

Rated: An above average risk, charged higher premium rates than Preferred or Standard classes.

Postponed: Occasionally, cases are postponed until additional information can be collected, a specified time has passed for information to be re-evaluated or until factors influencing the underwriting decision change which would result in the underwriter being able to classify the cases in the appropriate risk class.

Declined: Declined cases represent an uninsurable risk and so coverage is turned down. These decisions stick for at least two years or longer depending on the specifics, after which the client may reapply.

 

The task of underwriting has evolved in tandem with the lifestyle of clients. The term ‘lifestyle diseases’ was once used interchangeably with ‘longevity diseases’, but this no longer holds true as lifestyle diseases are no longer age specific.

 

According to the World Health Organization, the entire world is moving towards public health disaster as approximately 16 million people annually fall victim to lifestyle diseases prematurely. In 2012, non-communicable diseases were responsible for the deaths of 38 million people worldwide, with 16 million of its victims being under the age of 70.

 

What are ‘lifestyle diseases’? They are chronic conditions like hypertension and high cholesterol that subsequently lead to bigger problems which in turn snowball into major health scares. Obesity and diabetes are the biggest health concerns we face in this part of the world and major determinants of risk class placements

 

So to be a preferred and standard client stay healthy, happy, active, and sleep well. Take your insurance policy as soon as possible. The younger the better.

 

About Sandra Saksena

Sandra Saksena devotes her time and energies to her job in personal financial planning. She leads the first all-female team of financial counsellors at Nexus Insurance Brokers with whom she has maintained a professional relationship since 1996. Sandra heads the division Family Matters at Echelon Advisors and Management Consultants her family firm. Her focus is on financial advice and planning for women and small and medium business owners among others. She is a long time member and serves on various committees of the Million Dollar Round Table USA.

 

 

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