Life insurance underwriting has everything to do with risk. When you apply for insurance coverage, you are essentially asking the insurance company to take on the potential risk of having to pay a future claim, should something unforeseen happen to you, for example, death or disability.
This risk assessment process not only protects the insurer, but it also benefits you. When underwriting takes place at the application stage, and you’ve accurately and truthfully answered all the questions, the chance of your claims being paid is far greater. Just make sure you meet the definition of a claimable event under the policy.
What is life insurance underwriting?
Be aware, many of direct insurers have extensive exclusions built into their policies. An exclusion can be defined as a policy provision eliminating coverage to specific conditions, circumstances or situations. For example, when applying for TPD, some insurers might exclude your right shoulder from cover, due to a previous injury.
Different types of underwriting
You can purchase an insurance policy in one of three ways; through a qualified adviser/broker (Retail policy), telephonically or online (Direct policy), or as part of your superfund / employee benefits package (Group policy).
Direct insurance vs. Retail insurance
|Direct Policy||Retail Policy|
|Application process||Fast, easy and simple telephone conversation or online.||15 minutes to an hour session with a qualified adviser/broker.|
|Purchasing a policy||The cover is bought after the customer calls the contact centre or completes the application online.||The application is completed face to face or over the phone and generally after advice is provided.|
|Underwriting||Life insurance without medical underwriting. Limited to no underwriting during the application stage.||Fully underwritten during the application stage, medical underwriting included (if required).|
|Sum insured||Limits maximum amount.||You choose the cover amount.|
|Claims||71% higher chance of being declined vs. retail.||71 % less chance of being declined than Direct and 14% lessthan group.|
Life insurance in Australia can also be sold through direct advertising, where an interested person can call the advertised number and then undergo a simple underwriting process over the phone. It’s faster and easier. However, due to the lower underwriting criteria, premiums can often be more expensive, and as the ASIC 498 report revealed, there is an increased likely hood that your claim might be denied.
The insurer will access your Medicare and PBS data, by requesting the data from your relevant listed medical professional. The underwriter will then review the data and compare it to the information you provided and see if anything material was left out of the application and then consider if they would have issued / accepted the policy had they known your complete medical history.
To ensure your claim is processed as quickly and accurately as possible, we have an in house specialist claims team that can help review your claim documents before they are submitted to your respected Life Insurance Company and guide you through the entire claims process from start to finish.
The ASIC 498 report shows that a customer’s choice of distribution channel has a considerable impact on their claim being accepted or declined.
Life Insurance Claims Statistics in Australia by Distribution Channel 2013 - 2015
|Policy Types||Declined||Accepted in full||Accepted in part||Withdrawn||Undetermined/Unspecified|
Source: ASIC 498 Report
What is the life insurance underwriting process?
The underwriter also referred to as the risk assessor, seeks to minimise anti-selection by identifying poorer risks and applying more stringent conditions to the insurance contract as required. The more information is provided, the more accurate their assessment of an applicant’s life expectancy will be.
Possible acceptance statuses:
- Accepted as is: Application accepted as quoted.
- Loading: Applicant will pay more for same the cover amount, due to being a higher risk to the insurer.
- Exclusion: Certain cover, activities or body parts will be excluded from cover, due to increased risk or past medical or family history.
- Declined: Cover will not be provided. The applicant is too high a risk for the insurer.
The life insurance underwriting process
How long does life insurance underwriting take?
Height and Weight:
This is very important and must be accurate. Underwriters use your height and weight to calculate your BMI (Body Mass Index). If your BMI is over a certain amount they will require a nurse to draw blood and run some additional tests, for example, your cholesterol and sugar levels.
A long-term high BMI increases your chance of developing diabetes, especially if there is a family history or a predisposition to the disease. Overweight men are also more likely to develop prostate cancer because fat provides a favourable environment for the disease.
The probability of death increases as you get older, so your underwriter will have to take this into account when assessing your cover. Once your body has shown a predisposition to a condition, as you age there is generally a 95% certainty that the condition will occur.
Including smoking and drinking. It is especially important that an underwriter knows how many cigarettes, if any, you smoke a day. Smokers tend to have a shorter lifespan, therefore increasing their risk to the insurance company.
Hazardous occupations, like firefighters and police officers, are exposed to an increased risk of becoming injured, disabled or death.
This section is extremely important in the underwriting process and is designed to provide accurate and honest information concerning your past medical history and current physical condition. The following questions will need to be answered:
Risk assessors need to know which family member, if any, has or had a medical condition that might predispose you to develop the condition in future. For example, some cancers and heart diseases are hereditary and will increase your risk to the insurer.
This refers to things like diving, bungee jumping, motorsports, parachuting, cage fighting, etc. Underwriters need to know this information so as to assess your risk of future injury accurately.
- It may be a mandatory requirement set by the insurer for the level of cover you are applying for. Most insurers will not require medicals or blood tests if you are applying for cover below a certain amount.
- If you have or have had a pre-existing medical condition, the insurer may want to gain a better understanding of the condition and your overall medical history.
- Additional blood tests may be required if your insurer requires a more up to date reading i.e. for cholesterol or blood sugar level.
Please note: Medicals may not always be required and the cost of any additional testing needed will in most cases be covered by your insurer.
The benefits of an underwritten life insurance policy
- Draft in wide exclusions into your contract, AND/OR
- They do the underwriting at claims time, which can lead to a lot of uncertainty regarding a claim being paid out.
Even though some underwriting processes can be more outdrawn than others, we encourage it because it helps with the certainty that your claim will not be denied and your family will be taken care of financially should anything happen to you.