What Is Life Insurance Underwriting?
Life insurance underwriting looks at information about your health, lifestyle and other information to determine how much of a risk an insurance company would face if it sells you life insurance. This can also determine whether you’re approved for a policy or how much your premiums will be.
- Written by Terry Turner
Terry Turner
Senior Financial Writer and Financial Wellness Facilitator
Terry Turner has more than 35 years of journalism experience, including covering benefits, spending and congressional action on federal programs such as Social Security and Medicare. He is a Certified Financial Wellness Facilitator through the National Wellness Institute and the Foundation for Financial Wellness and a member of the Association for Financial Counseling & Planning Education (AFCPE®).
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Lee Williams
Lee Williams
Senior Financial Editor
Lee Williams is a professional writer, editor and content strategist with 10 years of professional experience working for global and nationally recognized brands. He has contributed to Forbes, The Huffington Post, SUCCESS Magazine, AskMen.com, Electric Literature and The Wall Street Journal. His career also includes ghostwriting for Fortune 500 CEOs and published authors.
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Eric Estevez
Eric Estevez
Owner of HLC Insurance Broker, LLC
Eric Estevez is a duly licensed independent insurance broker and a former financial institution auditor with more than a decade of professional experience. He has specialized in federal, state and local compliance for both large and small businesses.
Read More- Published: January 4, 2021
- Updated: May 8, 2023
- 5 min read time
- This page features 7 Cited Research Articles
- Edited By
What Is Life Insurance Underwriting?
Life insurance companies rely on insurance underwriters to determine the risk they face in selling you a policy. The process generally takes between two weeks and two months to complete. After that, you’ll know if you’ve been approved or denied for the life insurance for which you applied.
Insurance underwriters use computer software to analyze information about your health, medical history and lifestyle to decide whether you should be approved for a policy and under what terms. They also use this information to decide the amount of coverage you can buy and what your premiums will be.
The underwriting process weighs your personal information, financial information and other information gathered in your life insurance medical exam.
- Your life insurance application
- You will have to provide details of your financial situation and medical history when you apply for life insurance. These will be compared to more thorough financial and medical examinations during the underwriting process, so it’s important to be completely honest in the application.
- Your driving record
- Underwriters will review your motor vehicle record to determine how safe you’ve been as a driver. Speeding or other traffic tickets — especially for DUI, reckless driving, and minor infractions — can indicate that you are at higher risk for insuring. Owning riskier vehicles such as motorcycles can also raise your risk.
- Your financial records
- Underwriters will likely review your credit history and other financial records. They use methods called insurance scoring to measure your use of credit and your ability to pay debt. They work on the theory that if you have a poor credit history, you could be a higher risk to insure.
- Your job and hobbies
- Risky jobs such as police officers, firefighters and fishermen or dangerous hobbies such as skydiving, freediving or extreme sports can also raise your risk level during the underwriting process.
- Your life insurance medical exam
- In most cases, you’ll be required to take a medical exam to get life insurance. This involves a questionnaire about your medical condition along with tests on blood and urine samples. Underwriters use this information to determine if you have or are at high risk for a condition that may shorten your life expectancy and increase your risk for the insurer.
- Your medical history
- Underwriters will look at your medical records and your answers from the medical exam questionnaire to look for potential health risks. This includes a review of your family medical history to look for increased risk of medical conditions that run in your family such as diabetes, heart disease or cancer.
What Are Risk Factors that Underwriters Consider?
Underwriters consider any risk factors that may reduce your life expectancy. Life insurance underwriting identifies factors in your life that may reduce your life expectancy and make you more risky to insure.
Insurance companies make their profits by betting on risk. In the case of life insurance, it means they are betting you’ll live long enough that the company doesn’t have to pay out more than they’ve earned on your policy.
Companies collect and invest your premiums. These premiums are set at a level that lets the company make a profit based on how risky you are to insure.
- Age
- Sex
- Alcohol and drug use
- Criminal records
- Current health condition
- Personal medical history
- Family medical history
- Driving records
- Tobacco use
- Weight and body mass index
Underwriters analyze these factors and other information about your finances and lifestyle to determine your risk classification — also called a risk category or rating class. These determine whether you will be approved for a life insurance policy and how much it will cost you.
Understanding Your Life Insurance Risk Classification
There are four common life insurance risk classifications — Preferred Plus, Preferred, Standard Plus and Standard.
Every insurer uses its own underwriting system and may call these by different names, but they are roughly the same.
- Preferred Plus
- This classification takes in the healthiest and lowest risk applicants. It includes people who are young, have a long life expectancy, no risky behavior and no family history of heart disease or cancer. People with a Preferred Plus classification qualify for the lowest premiums.
- Preferred
- Applicants with only minor health issues such as untreated high blood pressure or high cholesterol can be placed in the Preferred risk category. Risky lifestyle behaviors may knock you down from Preferred Plus to Preferred. These applicants will pay more than Preferred Plus applicants.
- Standard Plus
- If you have health conditions requiring medication you will likely be given a Standard Plus classification. Your premiums will be higher than Preferred or Preferred Plus applicants.
- Standard
- You fall into the Standard risk classification if you have multiple medical issues and/or a high-risk lifestyle. You’ll pay the highest premiums if you fall into this classification.
The bottom line is that the fewer risk factors you have, the better your chances of getting the lowest premiums.
- Association for Financial Counseling & Planning Education (AFCPE®) member
- Holds six Health Literacy certificates from the CDC
- Emmy® Award winner
7 Cited Research Articles
- Experian. (2020, September 21). Does Life Insurance Require a Credit Check? Retrieved from https://www.experian.com/blogs/ask-experian/does-life-insurance-require-a-credit-check/
- U.S. Bureau of Labor Statistics. (2020, September 1). Insurance Underwriters. Retrieved from https://www.bls.gov/ooh/business-and-financial/insurance-underwriters.htm#:~:text=Insurance%20underwriters%20use%20computer%20software,determine%20coverage%20amounts%20and%20premiums.
- Dave Ramsey. (2019, March 6). What Is Life Insurance Underwriting? Retrieved from https://www.ramseysolutions.com/insurance/insurance-underwriting
- U.S. Federal Trade Commission. (2016, November). Consumer Reports: What Insurers Need to Know. Retrieved from https://www.ftc.gov/business-guidance/resources/consumer-reports-what-insurers-need-know
- Bronsema, J., et al. (2015, December 30). The Added Value of Medical Testing in Underwriting Life Insurance. Retrieved from https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4696800/
- Consumer Reports. (2013, February). Parent’s Guide to Every Kind of Insurance. Retrieved from https://www.consumerreports.org/cro/2013/02/parent-s-guide-to-every-kind-of-insurance/index.htm
- Independent Insurance Agents of Texas. (n.d.). Insurance Scoring: The Use of Credit History as an Underwriting Tool. Retrieved from https://www.iiat.org/agency-operations/insurance-laws-regulations/insurance-laws-regulations-companies-wholesalers
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