July 28, 2021

What is insurance underwriting and how does it work?

Underwriting is a word you may see if you’re looking at buying insurance. Here’s what it means and how you could use it to save yourself some money.

Are you applying for life insurance? It’s a good choice and a great way to help financially protect your family. But did you know your application goes through underwriting before you can buy the policy? Naturally, you might be wondering, what “underwriting” actually means. 

In this article, we’ll give a breakdown and answer your questions:

What is underwriting?

Underwriting is the process of assessing the risk you present when you apply for insurance. The amount of risk affects: 

  • the amount of insurance coverage you’re then eligible for and 
  • how much you pay for your premiums each month. 

What do insurance underwriters look for?

Insurance companies use the underwriting process for various types of insurance. 

What is the process of underwriting?

1. Apply. When you apply for life insurance, your completed application goes to the insurance company's underwriters. 

2. Review. Underwriters review the application using a variety of tools, including their comprehensive underwriting guide, called a manual. This manual includes guidelines for assessing risk factors such as your medical history, driving record and alcohol use. For example, a heavy drinker could be a riskier applicant than a non-drinker.

Generally, the more coverage you apply for and the older you are, the more “evidence of insurability” you need. That’s proof that you’re a lower risk. You provide evidence of insurability by answering questions and undergoing various medical tests.

While requirements differ depending on your situation, underwriters commonly use these tools:

  • An attending physician statement. This is a summary of your medical history prepared by your doctor. A third party requests the report to ensure it’s objective and may check it for completeness.
  • A paramedical exam. For this, a third-party paramedical examiner gathers information on your medical history and checks your height, weight, blood pressure and pulse.
  • Vitals. A measure of your height, weight, blood pressure and pulse, taken by an approved paramedical firm.
  • A tele-interview. This interview gathers information on your lifestyle and medical history over the phone. Sometimes, a tele-interview and vitals can replace a paramedical exam.
  • A blood test/profile. For this, you submit a blood profile and a urinalysis (an evaluation of your urine) for insights on your health.
  • A mature focus interview (MAFI). Insurance companies often require a MAFI if you’re 71 or older. That’s because your risk of health problems increases over time. The MAFI examines your daily living habits and tests your cognitive and mobility skills.

Sometimes an underwriter may also ask you for more documents. They may ask to see a motor vehicle report or a financial inspection report.

3. Decide. The underwriting process will determine: 

  • if you’re approved for insurance, 
  • how much life insurance coverage you can get, and
  • what you’ll pay per month for your premiums. 

Depending on the outcome, you can decide if you want to buy the insurance at the price and terms provided.

How long does underwriting take?

You may have your life insurance application approved within hours or days. Or, it could take weeks or even months. The length of time depends on the type of life insurance policy you’re purchasing, and a number of other factors.

How can you get a lower life insurance rate?

You can’t change some risk factors, such as your age or your family history. But there are other factors that you can change. 

  • Nutritious food and regular exercise have financial as well as physical benefits. Life insurance premiums are typically lower for healthy people with healthy lifestyles. That’s because being overweight can increase your risk of illnesses such as diabetes and heart disease. The closer you are to the healthy weight range, the better your chances of paying a lower premium.
  • You can improve your chances for a better rate by making other healthy lifestyle choices. For example, you can drink alcohol in moderation and avoid smoking. Even driving safely can help bring down your rate.

Is underwriting always needed?

Not always. Insurance policies that don’t require underwriting are sometimes called “guaranteed issue” policies. They can be a very good choice if you’re in poor health. But if you’re in good health, you could be better off with a policy that calls for underwriting. A small investment of your time (and maybe a little of your blood) could result in a big saving.

How can you apply for life insurance? 

The right life insurance product for you depends on your personal situation, needs and goals. So it helps to talk to a professional, like an advisor, for guidance. An advisor can look at your situation to help you decide which type of insurance meets your needs. Then, they can help you through the application and underwriting process. 

This article is meant to only provide general information. Sun Life Assurance Company of Canada does not provide legal, accounting, taxation, or other professional advice. Please seek advice from a qualified professional, including a thorough examination of your specific legal, accounting and tax situation.

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