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Life Insurance Underwriting

Written by Shelter Bay

What is underwriting?

It is an important part of the life insurance application process where the insurer (aka the underwriter) accepts the financial liability of your death and assigns a premium to the risk.

Underwriting is used to evaluate the insurance company’s risk of loss.

Here is how underwriting works during the application process:

  • An applicant applies for some type of life insurance for themselves, a family member, a business partner or someone they have a financial interest in. The applicant will become the policyholder, and the person whose life is insured becomes the life insured. The policyholder and the life insured can be the same person.The beneficiary is the recipient of the benefit (the payout of the insurance policy). A policyholder can name more than one beneficiary.
  • The policy is always underwritten on the life insured. This presents a risk to the underwriter. The underwriter seeks to mitigate this risk. It is a given that the life insured will eventually die; the underwriter is most concerned about when that death will occur.The longer the underwriter has to collect premiums (the annual fee for the policy), the longer the underwriter has to invest and grow those premiums.

    Therefore, the underwriter will “reward” the least risky applicants with lower premiums and collect higher premiums for policies they will have to pay out sooner than later.

  • The policyholder and the life insured are empowered to get the lowest possible premium as many aspects of the underwriting process are directly tied to age, health and lifestyle.Smokers pay roughly double the premiums than non-smokers because smoking has been proven to shorten one’s lifespan and very negatively affect one’s health.

    Likewise, risky hobbies, such as skydiving, storm chasing or underground urban exploration, are also choices. Feel free to indulge your hobbies, but know that you are risking your life and your premiums will reflect this.

  • Sometimes health is not a choice. Cancer, diabetes, a family history of heart disease – these put you at risk and can increase your premium. However, the insurance industry has evolved to mitigate these risks with less cost to the applicant than in previous years by offering rated or no-medical (simplified issue or guaranteed issue) policies.
  • Age is also a major “risk” for underwriters. The older the life insured, the greater the risk of death from natural or age-related causes. This is why both term and permanent policies exist. When an applicant is younger but has more financial pressures, such as childcare and a mortgage, term has a lower premiums and is more affordable.
  • For individual insurance, underwriters rely on mortality tables that show death rates among defined populations based on age and location. For group insurance, underwriters rely on the general makeup of the group (health is not a factor for smaller amounts of coverage), such as a group of engineers or a group of university alumni, as well as on the claims history of that group.

Underwriting is all about assessing risk and pricing policies accordingly so that everyone can get the life insurance they need to protect their beneficiaries. To learn more about underwriting and how you can get the most affordable premium, contact Shelter Bay Financial Corp.

You can also learn more by calling toll free at 1.888.498.5288

Shelter Bay Financial Corp
Shelter Bay Financial Corp

Life & Health Insurance brokers working for Canadians

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