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Life Insurance Underwriting Guidelines

by Cynthia
Life Insurance Underwriting Guidelines

Why Life Insurance?

In the unpredictable world we live in today, we often forget to think about where we see ourselves in the next 5 or 10 years. We usually neglect thinking about what would happen when we pass away. Thus, it is essential, for those who can afford it, to participate in a Life Insurance Plan.

You can have peace of mind as a life insurance plan relieves you from the stress of any unforeseen circumstances. Life Insurance alleviates one’s worries about taking care of one’s family by paying them a sum of money that is agreed upon in the plan. That money can then be used by the family for their children’s school fees or to pay the utility bills.

Life Insurance Underwriting

Just thinking about how one’s family would manage without him/her can be gruesome, given that person was the primary breadwinner of the house. That is why it is good to enroll yourself in a Life Insurance plan. And to be able to enroll yourself in a life insurance plan, it is helpful and essential for you to know the underwriting process involved.

Underwriting is a process typically used by banks and insurance companies as they assess an application. Things like a person’s financial status, including their annual income and debt, are assessed to ensure that the person is able to pay for the service and henceforth doesn’t pose a risk to the company.

Other metrics are also used, which help the lender of the loan or insurance to choose terms that work well for both parties.

Underwriting for Life Insurance is an integral part of the whole application process. It is used to analyze and assess the potential risk the insurer might have to face by insuring the policyholder based on some metrics such as their age, health, lifestyle, occupation, and financial situation.

So, for example, if one smokes, the insurance company is taking a bigger risk by insuring their life compared to someone who doesn’t smoke. The more the risk involved, the more costly the insurance will be. Now that we know what life insurance underwriting is, let’s take a look at the process involved.

How The Underwriting Process Works

Different insurance companies have different insurance policies and procedures, but the underwriting process is more or less quite the same. There are usually two parts to the underwriting, the first being Financial Underwriting, which is the evaluation of the to-be insured person’s personal or business background and current economic/financial circumstances.

The other part is medical underwriting, where the insurer evaluates a person’s health through their medical history, lifestyle, and other factors that relate to the individual’s medical needs. Through thorough analysis, the underwriters can make an estimate of the risk associated with providing them the insurance coverage.

It starts off when you complete the life insurance application. The company representatives ask you for your personal details to get an overview of your financial and medical history.

In some cases, this is followed by a call where the insurance companies check and verify the information that has been provided. This ensures the data is accurate and complies with previous records.

After this, the official underwriting process starts. You then have to take a Paramedical exam, where medical staff conducts a checkup to get basic information about your health such as height, weight, blood pressure, and a series of tests such as a blood and drug test.

Sometimes, if there are some red flags from the checkup, an Attending Physician Statement (APS) is usually called where the doctor briefs on the issue and informs the underwriter. This may prolong the whole process. If all is well, some insurance companies require a prescription check where your medication history is examined.

This is followed by a Motor Vehicle Report where they examine your driving history, analyzing the nature of your driving with occurrences of accidents, fines, or violations like overspeeding or breaking traffic light signals. This gives the underwriter an estimate of the risk you pose, at least in terms of driving.

Another process following this includes statistical analysis of your life, which is basically an estimate of how long you are going to live based on provided data and tests, examination of your finances, and hobbies. After assessing all important aspects of your life, you are given a final rating, which reflects the insurance coverage that will be provided to you.

This seems straightforward, but it is a lengthy process spanning anywhere from 5 to 7 weeks. It could get even longer with the medical tests.

Non-Life Insurance

On the other side of the spectrum is Non-Life Insurance, which is simply any type of insurance other than life insurance. Some common types of non-life insurance include auto, property, health, and accident insurance.

Non-life insurances would obviously also have some underwriting process. Underwriting standards for each non-life insurance are different. For health insurance, a person’s age, weight, height, medical history, and lifestyle are taken into account before finalizing a coverage plan. For Auto insurance, details about the automobile like manufacturer, engine capacity, and other statistics about the vehicle are required.

Comparison Between Life and Non-Life Insurances

If we compare these two types of insurances, life insurances are usually long-term while non-life insurances are short-term. Life insurances come into action when the person dies and the insurance company pays their beneficiaries while non-life insurances come into action in the event of any emergency such as an accident or natural catastrophe.

The underwriting guidelines also differ. While life insurance underwriting assesses the person’s (under insurance) estimated time left to live based on information, non-life insurance underwriting does not take that into account. Instead, non-life insurance underwriters take into account things specific to what the insurance is about, such as health, and auto insurance.

In most scenarios, non-life insurance underwriting tends to take lesser time than life insurance underwriting as it requires a series of medical and financial examinations.

The Risks Involved

Usually, non-life insurance underwriting faces a lot of risks, which are categorized into Premium/Catastrophe risks and Reserve risks.

Premium/Catastrophe risks pertain to the unpredictability of disastrous events such as fires, floods, hurricanes, and motor accidents. Underwriting is difficult as it is hard to predict the timing and frequency of such events.

Reserve risks pertain to changes in longevity, latent factors, precedents, etc. 


Insurance, whether life insurance or non-life insurance, can come in quite handy in unexpected situations. However, people must go through the terms and conditions carefully before opting for any insurance plan. A well-calculated decision taken at the right time can offer massive relief and peace of mind to the insurance holders.

Photo by RODNAE Productions

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