Nobody enjoys thinking about this stuff
However, the truth is that if a household’s primary income source suddenly ended tomorrow, most families would experience significant financial difficulties within weeks. Studies indicate that 30% of Americans would struggle financially within one month of the loss of a primary breadwinner.
That isn’t a scare tactic. It’s just maths.
The good news?
It’s much easier (and less expensive) to build a safety net than most people think. The biggest stumbling block is the life insurance underwriting process. You know, the part between “I want a policy” and “Here is your policy.”
Underwriting is simply how an insurer works out two things:
- How risky it is to cover someone
- What that person should pay
Yep, no secret sauce. Lots of shoppers read through life insurance reviews on Reddit to figure out how long underwriting takes and which companies approve apps the quickest, and these three questions always come up: 1) How long does the underwriting process take? 2) Will I need a med exam? 3) What about my health?
Here’s how the whole thing works…
Here’s what’s covered:
- Why Families Put This Off
- The Life Insurance Underwriting Process, Step By Step
- What Underwriters Actually Look For
- How To Get Approved Faster (And Cheaper)
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Why Families Put This Off
Cost. That’s the number one reason.
Oh yeah, and nine times out of ten it’s wrong. Adults younger than 30 guess the cost of a basic term policy to be 10 to 12 times what it actually is. Ten TIMES.
The need is huge. According to LIMRA, only half of U.S. adults have life insurance. And over 100 million say they don’t have coverage (or enough coverage) but know they should have it.
It’s not that families don’t believe in it. They do believe in it. They just keep postponing it until next month.
And here’s the problem with next month…
Underwriting is priced by your risk today. Age increases day by day. Medical conditions become part of your history. Once you buy a policy at age 32 it is locked into 32 year old rates for the entire term.
Waiting is the most expensive thing a household can do.
The Life Insurance Underwriting Process, Step By Step
The majority of applications consist of five stages. Learn what they are and stress will be almost nonexistent.
Stage 1: The Application
Now comes the paperwork phase — well, most of it’s electronic these days and will take you 15-30 minutes.
Prepare to be asked your age, height, weight, occupation, annual income, tobacco use, hobbies, family health history and current prescriptions. Answer truthfully. All answers are verified with external sources anyway, and a discrepancy is the quickest way to a denied application or future claim.
Stage 2: The Data Check
After you submit the form, the insurer begins mining data. It is done silently behind the scenes, and most of the heavy lifting occurs here.
They usually check:
- Prescription history
- Motor vehicle records (yes, driving matters)
- The MIB database of previous applications
- Electronic health records, where available
Stage 3: The Medical Exam… Or Not
This is the stage everyone dreads. It’s also disappearing fast.
A traditional underwriting involves a nurse visit. They check height, weight, blood pressure, and take blood and urine samples. It’s complimentary. It takes about 30 minutes. Normally, they will come to your home.
Except, accelerated underwriting just threw a wrench in that plan. In a recent industry survey of individual life applications, 47% were eligible for an accelerated path and another 12% qualified for a fully automated decision. The needle is replaced by data and algorithms.
Healthy applicants under 60 buying sensible amounts of cover often skip the exam altogether.
Stage 4: Risk Classification
Now the underwriter assigns a risk class. This single decision sets the premium.
Classes generally run like this:
- Preferred Plus — excellent health, clean records, ideal build
- Preferred — very good health with minor issues
- Standard — average health for that age group
- Substandard (rated) — a genuine condition that raises the price
Two individuals of the same age group could have massively different premiums depending solely on where they fall under here.
Stage 5: Approval And Delivery
The offer arrives. Sign it, pay the first premium, and the cover goes live.
Regular underwriting can take anywhere from four to six weeks. Accelerated decisions take minutes. Policies are issued within 48 hours.
What Underwriters Actually Look For
Underwriters aren’t looking for perfect people. They’re looking for predictable ones.
Age, smoking, height and weight, chronic diseases like diabetes or heart disease and family history of premature death are the big ones. After that it’s the lifestyle surprises no one sees coming: a recent DUI, a driving licence loaded with speeding tickets, scuba diving, recreational flying or travel to volatile regions.
Here’s the part most people get wrong:
Having a health condition does not automatically disqualify you. Conditions that are well-controlled are approved daily. An individual with diabetes that has stable readings & consistent doctor visits will often have a better chance than someone with an uncontrolled condition with no physician documentation.
Control beats perfection.
Auditors aren’t the only ones scrutinizing predictive models and external data vendors, however. State insurance departments are still examining insurers’ use of external data and predictive models in their underwriting decisions as well, which is precisely why accuracy and documentation are so important from the insurer’s perspective.
How To Get Approved Faster (And Cheaper)
A few small moves make a genuine difference to both speed and price:
- Apply younger. Every birthday costs money.
- Book the exam for early morning. Fasting improves cholesterol and glucose readings.
- Avoid caffeine, alcohol and strenuous exercise for at least 24 hours. Each can raise blood pressure.
- Make sure you have doctor details. The lack of medical records is the number one reason for delays.
- Kick tobacco early. Many carriers require 1 year tobacco-free to drop the tobacco rate.
OK, one last little detail that people never seem to get. Never Ever Let An Existing Policy Cancel Before The Replacement Policy Is Completed And Paid For. Gap Cancellations Are Where People Get Injured!
Bringing It All Together
You do not create a family safety net in a time of crisis. You build it years earlier, quietly, on a normal afternoon when everything is fine.
Life insurance underwriting exists to price risk fairly, and it’s way less painful than you think:
- Complete an honest application
- Let the insurer check the data
- Take the exam (if one is even needed)
- Receive a risk class
- Sign, pay, and go live
Little to nothing has to be done for most of it. Then when that policy goes into effect it runs automatically for years to come.
If it were gonna happen, it would have happened already. Well, the best time to handle it was five years ago. The second best time is right now.
For more on this topic, check out the full Saving Money collection
