What is the purpose of underwriting, anyway? Underwriting is when professional underwriters determine the level of risk you present to your company’s business before your application can be accepted for coverage. Learn what an insurance company evaluates to decide on your offered policy.
To get a deeper understanding of the applicant’s health, age and health status are the most significant factors in determining insurability and the amount they pay for life insurance. Examples of considerations include self-reported medical histories, prescription history, family history, tobacco use, and even a physical exam. You may be considered at a higher risk if you use medications for preexisting conditions. Depending on the life insurance company, a medical exam is unnecessary as some applicants are issued an offer in less than a minute.
When your financial background is being reviewed for life insurance underwriting, insurers want to know the following:
- How much do you earn?
- What is your credit score?
- Do you have any debts?
- Can you reliably pay off your debts?
Providers limit the amount of death benefit you can receive based on your annual income to prevent people from being over-insured. The underwriter wants to ensure that you’re using the death benefit for its intended purpose – the final expenses – instead of providing your beneficiary with a significant payout than they need. You may be denied coverage in rare circumstances if your income is below a particular threshold, usually $20,000 per year.
Another factor in analyzing is behavior – driving history, occupational history, hobbies, interest, childcare, etc. A person who rides a motorcycle in her spare time will typically have a high life insurance coverage than someone who leads a sedentary lifestyle. Every individual situation varies, and insurers have slightly different perspectives regarding behavioral risk. For example, some insurance companies take a conservative approach to marijuana use from applicants, whereas others are lenient as it becomes legal in more states.
Once this information has been collected and confirmed by a life insurance company, it is applied into a data model to decide whether you’ll be provided with a policy, how much coverage you’re entitled to, and the amount you will pay for insurance.
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