Life insurance is a financial tool used by households and businesses to protect them from financial loss as a result of premature death. Most people are familiar with the first step in applying for insurance – completing an application. But most probably aren’t as familiar with what comes next, when that application moves on to the insurance company. This next step is called underwriting. To help you gain a basic understanding of underwriting, why it’s necessary and why we ask you the questions we do, here are some answers to common questions people have when applying for insurance. What you need to know about insurance underwriting?
WHAT IS UNDERWRITING?
Underwriting refers to the process insurance companies use to determine the eligibility of an individual for insurance coverage. When an insurance company conducts underwriting, it looks at a large collection of information, both medical and non-medical, to complete its eligibility assessment and decide whether to accept and approve the insurance application.
WHY IS UNDERWRITING NECESSARY?
Underwriting is necessary to determine your eligibility for insurance coverage as well as the cost of that coverage. The price you pay for insurance should reflect your personal risk level. Underwriting looks to assess that risk and then determine a suitable price for the coverage. Individuals who are considered to be at higher risk will generally pay a higher premium for coverage than those at lower risk. The degree of underwriting can also vary depending on the type and amount of insurance coverage being purchased, as well as personal information, such as your age, health, lifestyle and occupation.
WHY IS SO MUCH INFORMATION REQUESTED ON INSURANCE APPLICATIONS?
The insurance application forms the basis for assessing your eligibility for insurance. It’s the key part of a legal contract between the insurers and you when you become insured. You may need to answer a range of questions as well as provide background about your health, family history, income, employment, travel, leisure activities and other personal details. Some of this may seem extensive, however, all this information is needed so we can determine if you can be insured, and on what basis. The information you provide helps us to understand your unique risk factors so we can provide you with appropriate costs for your coverage.
WHY DO I NEED TO PROVIDE INFORMATION ABOUT DRIVING AND OTHER ACTIVITIES?
Along with medical concerns, there are non-medical risk factors that may increase your insurance risk. With driving, for example, someone with multiple driving infractions is at higher risk of death than someone with no traffic violations. Similarly, someone who participates in hazardous sporting activities, such as skydiving or specialty types of scuba diving, also has increased risk beyond the norm.
It is important to remember that all of this information protects you as the consumer so that when a life insurance claim is submitted there will not reason to decline the claim.