An Overview Of The Policy Design, Underwriting, And Planning Process
While this process is generally the same regardless of who you do business with, some aspects of this process are unique to me. When applicable, I'll try to point this out in the guide.
The policy design and underwriting process is where you and I work together to design your life insurance policy, and then apply for coverage with a life insurance company. I do not work for a life insurance company. I work for you. I am your agent, not the insurance company's agent. Not all agents are independent agents. An independent agent (e.g. me) works for you and represents your interests in front of an insurance company. A captive agent, on the other hand, works for the life insurance company and represents the interest of the company he works for. It's important you know the difference and who you're working with before you start the underwriting process.
The underwriting for most insurance companies involves both financial underwriting (to determine your income, assets, and ability to pay premiums) and also medical underwriting (to determine whether you are healthy enough to have insurance and what risk rating will be applied to your policy).
The policy design process is where I design a policy for you that will be suitable for your financial situation. Most life insurance companies allow agents to customize their life insurance products for policyholders (at least somewhat). The degree of customization possible depends entirely on the insurance company. Some companies allow extensive customization, while others allow minimal or no customization.
Relatively few agents do custom life insurance policies. All I do is custom life insurance. I'll help you choose an appropriate policy, and then walk you through the application process. Once the application is submitted, underwriting begins. Also, while your health and lifestyle ultimately determine the risk rating you'll get from the company, there are several important factors that are in your direct control, and those factors can dramatically improve your odds of getting a better risk rating than you would otherwise qualify for.
Either way, the process starts with the first meeting.
The First Meeting (Fact-Finder, Initial Planning, and Field Underwriting Process)
The first step in the life insurance planning process is for me to get to know you a bit better by asking you some questions about your finances and your short and long-term financial goals. Next, we'll figure out your Human Life Value and how much life insurance you need to buy (as well as how much premium you need to fund your policy with) to achieve long-term financial security. Finally, we'll do some field underwriting to get a sense of what you might qualify for. Generally, the first meeting with me is a discovery meeting, where I try to understand your financial goals, your budget, what you qualify for, how suitable a policy is for you given your financial situation, and whether or not it makes sense for you to buy a policy.
If you make it to the next step, you then decide how much you want to insure your life for, along with how much premium you want to pay into your policy. If you're buying term insurance, I'll design a simple term policy for you based on your human life value. If you're buying whole life insurance, I'll design a policy around your budget, Human Life Value, and how you intend to use the policy with minimum base and maximum annual payment limits.
The Formal Underwriting And Application Process
There are two basic parts to most applications that you are responsible for filling out. The first part is a series of general information collection forms. The second part is a health or medical questionnaire.
Part I of the application will ask you about the basics: your name, age, telephone number, Social Security Number, address, date of birth, your sex, marital status, and where you work or what you do for a living.
The application also asks you about the amount of insurance you want to buy, the type of policy, the name of your beneficiaries, and other insurance policies you own or applications you have pending with other insurers.
The insurer may also ask about your hobbies and whether you engage in any dangerous activities like auto racing, cliff diving, sky diving, rock climbing, and so on. The insurer wants to know if you travel a lot, if you are a pilot, or if you're currently on active duty in the military.
And… oh yes… they want to know if you smoke or use tobacco products of any kind.
The second part of the application is about your health and will ask you about your health history, your family's health history, and about any medical problems you are currently being treated for. It will ask about medications you're currently taking as well as any vitamins or other supplements you're taking.
Kinda of sounds like you're cheating on your insurance company with another insurance company, doesn't it?
Back dating allows you to be underwritten as though you are a younger age than you really are. The insurance company allows you to back-date a policy up to 6 months or even a year. This means if you just had a birthday or if your birthday is coming up in a few months, you can ask the insurer to underwrite you as though you were a year younger.
This gets you a lower premium for the rest of your life, but it can also potentially improve cash value and death benefit growth of your policy.
But, nothing is free.
You must pay all back-due premiums and then pay your next premium on the policy anniversary date. So, if it is the end of June, and you back-date your policy 6 months, you will owe 6 months of premiums. Additionally, your next premium will be due every year in January, since you back dated your policy to January (6 months from the end of June).
If you're paying monthly, your policy anniversary is now in January and you pay 6 months of back dated premiums, then pay current premiums to December, and then start making the next year's premiums in January.
Accelerated underwriting is a fully-underwritten policy where the insurance company uses advanced data analytics and artificial intelligence to predict your risk of death, and any other risks you may pose to other policyholders of the insurance company.
Usually, this results in a faster (as fast as 24 hours) and more accurate risk assessment than traditional underwriting. There is no formal medical exam, no blood and urine collection, and no attending physician's statement, and no waiting for a result. Meaning, your policy can be underwritten and issued in as little as one day (24 hours).
For some policies, accelerated underwriting can take between 2 and 4 weeks.
If the insurance company cannot underwrite you using accelerated underwriting process, they will send it to traditional underwriting for review. At this stage, the insurer may require you to go through the conventional underwriting process.
The Medical Exam And Report
If the insurer requires a medical exam, you can usually take it at a location of your choosing, provided it's done by a qualified healthcare practitioner. The practitioner usually must be either a doctor, nurse, or nurse practitioner. The insurance company pays for the cost of your exam so you never see a bill.
How To Prepare For Your Medical Exam And What To Expect
There are several parts to the medical exam.
The Non-Medical Exam
This exam is basically just a questionnaire and is included as part of the larger overall medical examination. The nurse will collect basic information about your medical history and may include more in-depth questions about the medications you take.
A Paramed Exam
This is where a nurse collects your full medical history, including height, weight, blood pressure, and pulse.
A nurse will check your heart and lung function, draw a blood sample, collect a urine sample, and possibly perform several other tests depending on your age and how much insurance you're applying for.
How to prepare for your exam:
- Make sure you have a good photo ID available (i.e. a driver's license or government ID with photo).For all blood tests, fast for at least 4 hours before the blood draw. Ideally, you would fast for 8 hours - this will give the insurer the most accurate information. Drinking water is fine. No sugared/flavored water. No soda/pop. Not even vitamin water. Just. Water. Plain 'ole water… from a tap or filtered water from a bottle.
- Tell the examiner about any medications or vitamins (or anything else) you're taking. Many years ago, there was a client taking some brand of cough medicine, and they tested positive for cocaine despite never having touched the stuff. So... tell your examiner if you are taking any OTC medications (or anything else, really).
- For all blood tests, fast for at least 4 hours before the blood draw. Ideally, you would fast for 8 hours - this will give the insurer the most accurate information. Drinking water is fine. No sugared/flavored water. No soda/pop. Not even vitamin water. Just. Water. Plain 'ole water… from a tap or filtered water from a bottle.
- For all urine tests, drink a glass of water one hour before the exam.
- Bring a list of any medications (and other vitamins or supplements) you currently take. You need to give the nurse the name, dosage, frequency, and so on. Basically, everything you take, when you take it, and how much.
- Bring the name of your attending physician, his or her address, zip code, telephone number, and the last time you went in for a visit and why.
- Schedule your appointment for the least stressful time of the day. Tests can really freak people out sometimes. Even if you love having your blood drawn and urine collected by a stranger, the best results will come when you're calm and at peace with the world. Early morning is usually best, but choose a time you think will work for you.
- Get a solid 8 hours of sleep before your exam.
- You don't have to take your clothes off. It's… not that kind of exam. But, you should wear a short-sleeved shirt or something that makes it easy to draw your blood.
- I'll try to say this in the most polite way I can… if you are over 300 pounds, please let the testing center know that you'll need a special blood pressure cuff and a scale to measure your weight. It's no biggie, but they have to know beforehand so they can pull the equipment if they don't have it on-site.
- If you are a senior citizen (over age 71), you get a special Senior Exam, which will involve tests for mobility, cognitive ability, and a few other questions.
- Do not drink any caffeine (coffee, soda, tea) for at least 3-4 hours before the exam.
- Do not smoke or chew tobacco for at least one hour prior to the exam.
- Do not drink any alcohol for at least 8 hours before the exam.
- Do not use any nasal decongestants.
- Do not engage in strenuous exercise for 24 hours before the exam.
All of these things can mess up the exam results and give the insurer a false picture of your current health.
Once your medical exam is done, it's sent to the insurance company and is reviewed by the company's medical director or associate.
You can also request a copy of your medical report, usually at no cost to you. This will include your blood, urine, and other medical tests the insurer ordered.
Speaking of medical tests, here's what the insurance company typically looks for:
Blood Profile and Urinalysis (Blood / Urine Exam)
A nurse or nurse practitioner will collect blood and urine from you, label it, and send it to a testing facility.
The insurance company screens you for:
- Cholesterol and other blood lipids,
- Blood sugar (including HbA1c,
- Liver and kidney function,
- Illegal drug use (although they aren't looking to report you to the police… they're interested solely in how it impacts their ability to underwrite you for insurance).
Based on these initial tests, more tests may be needed.
The medical lab sends all results directly to the insurance company, but again, you may request a copy of those results from the insurer. Results are valid for up to 6 to 12 months, depending on the insurance company, which means you can buy multiple policies within that timeframe and not need another exam.
Your Physical Measurements
Nurse will record your height, weight, blood pressure, and pulse rate. All results are sent directly to the insurance company and you may request a copy of these results.
These results are good for between 6 months and 2 years, so you can use them again for any future life insurance purchases within that timeframe.
The medical examiner or nurse will swab your cheek and gum for 2 minutes to collect fluids for HIV, cocaine, and nicotine screening.
These results are sent directly to the insurance company, you can request a copy of them, and the results are good for between 6 months and 2 years, depending on the insurer.
Resting Electrocardiogram (ECG)
If you are over a certain age, the insurer may request an ECG. It's painless. The nurse simply monitors the electrical activity of your heart and may also do a treadmill stress test.
The results are sent to the insurer, you may request a copy of the results, and they are good for between 6 months and 12 months, depending on the insurance company.
Rx Pharmacy Prescription Check
The life insurance company will run a prescription check with a pharmacy database program to verify all prescription drugs you're currently taking.
The insurer will check the MIB for existing information about you.
No, not the Men In Black.
The Medical Information Bureau (MIB) is where insurers can collect information about your medical history (with your permission). It is a sort of data repository set up by insurance companies. But… it is also a nonprofit agency so they aren't selling your information. It is only used by underwriters at insurance companies.
The stated purpose of the MIB is to help hold down the cost of life and health insurance (including disability insurance) by minimizing and preventing misrepresentation and fraud.
For example, if an insurance company discovers an applicant has a physical illness, the insurer can report this information to the MIB so that other insurers will be notified if that same applicant tries to apply to another insurer. This is especially useful for insurers when an applicant has a terminal or chronic illness which would preclude them from buying insurance.
Financial And Other Special Questionnaires
Sometimes, an insurance company needs more information than what's on the standard application.
Yay! More paperwork.
When necessary, an insurer might require some additional information to verify your income and assets (especially if you have a large estate). You may be asked to fill out a financial questionnaire or maybe a supplemental health questionnaire. The purpose of these special questionnaires is to help the insurer better understand your financial or health status.
Sometimes, the insurer needs to know more about your hobbies, like if you're a pilot or a stuntman or if you have a foreign residence, or if you are in the military.
Some occupations are more dangerous than others and the insurer wants to know what it's getting itself into before it issues a policy.
An inspection report is necessary when you apply for very large amounts of life insurance. Normally, insurers will get these reports from national investigative firms. The insurance company wants to know about your general character and reputation, where you make most of your money, and whether you engage in any unusual or potentially dangerous hobbies.
Most people's insurance needs do not trigger an inspection report.
Credit Reports And Ratings
Basically, the insurance company does not want you to lapse your policy because it actually costs them money (a lot of money) to underwrite you. Generally, an insurer's expenses for issuing a policy cannot be recovered in a few years. In some cases, especially with permanent life insurance policies, it can take 10 or more years for an insurer to realize a profit. Obviously, they cannot afford to have a bunch of policyholders lapse their policies in the first 5 years.
So, if you're a high credit risk, an insurer might decide to either charge you more money or decline your application altogether.
Motor Vehicle Report
The insurance company verifies your driving record by pulling a motor vehicle history report. Why do this? The insurer wants to know if your driving habits are considered "risky." Just another piece of the puzzle.
The insurer verifies all information you and I put down on the application. They do this by doing a supplemental health questionnaire on the phone with you.
These telephone interviews usually don't take too long. Questions are used to verify information you've already put on the application, to collect missing details, and to gather any supplemental information the underwriter needs.
Risk Classes And Table Ratings
Once the underwriter has combed through all this data, he or she assigns you a risk class and makes an offer for life insurance coverage.
"Risk class" refers to a formal classification an underwriter makes when determining your risk profile.
Based on what the underwriter discovers during the underwriting process, you're rated as either a standard risk, a preferred risk, or a substandard risk, and… as either a smoker or non-smoker, and… as a male or female (duh).
Standard risk is, more or less, what it sounds like. It is a "normal" or "average" risk for the insurer. Most people who buy life insurance are standard risks and thus receive the standard risk class and premium rates.
A preferred risk is a better than average risk… meaning the insurance company takes less risk than a standard risk by insuring this person. And… the person being insured pays a lower than average premium for the life insurance policy.
Insurance companies often have different sub-classes in the preferred risk classification. These include (but are not limited to):
- Preferred Plus
- Preferred Plus Select
- Ultra Preferred
A substandard risk is a risk that is riskier than a standard risk. Most life insurance companies rate substandard risks using specialized tables. These tables might be ordered "A" through "J" or "1" through "10".
Each substandard rating corresponds with an increase in the premium rate over the standard rating.
Here are some example substandard risk ratings (your actual rating may differ from this if you are rated):
|Table Rating||Standard Rating + (%)|
|Table A (1)||+ 25%|
|Table B (2)||+ 50%|
|Table C (3)||+ 75%|
|Table D (4)||+ 100%|
|Table E (5)||+ 125%|
|Table F (6)||+ 150%|
|Table G (7)||+ 175%|
|Table H (8)||+ 200%|
|Table I (9)||+ 225%|
|Table J (10)||+ 250%|
Smoker vs Non-Smoker
Pretty simple. If you use tobacco products of any kind, the insurance company will rate you as a smoker. However, if you do not test positive for nicotine, the insurer will classify you as a non-smoker. This can happen if you only smoke very infrequently or smoke cigars on special occasions.
For example, some insurers will rate cigar smokers as "non-smokers" as long as they smoke less than 10 cigars during the year. Other insurers don't consider cigar smoking a tobacco rating regardless of the number of cigars you smoke, while other insurers will rate you a smoker if you've smoked just 1 cigar over the past 12 months.
If you smoke very infrequently, tell the paramed nurse and please let me know if you haven't already. Also, include this information on your insurance application.
Non-smokers enjoy lower rates than regular smokers.
Regular smokers in their 30s typically pay 2 to 3 times as much for premiums as non-smokers. And, smokers in their 40s and 50s pay 3 to 5 times as much as non-smokers.
Protip: if you smoke or use tobacco products… quit smoking and using tobacco products.
If you currently smoke, you can still get insurance quite easily, but you'll pay a higher premium. That's the bad news. The good news is you can quit at any time, and get re-rated 12 to 24 months later as a non-smoker.
A Word On "Teaser" Rates
Large online brokerages love to throw out "teaser rates." A teaser rate is a rate that's very, very, low and probably not one you qualify for. I do not show teaser rates. I almost always quote a standard rating for insurance. If you are comparing quotes for term insurance, keep this in mind.
Changing Your Risk Class After Initial Underwriting
Some insurers will rate you a standard risk if you have high blood pressure or on cholesterol meds as long as your condition is stable. Others will rate you substandard no matter how well your condition is managed.
However… most underwriting decisions are not final.
You can almost always go back later and have the underwriter re-rate you, usually at no cost to you. In order to get a better rating, however, something has to have changed since your initial rating.
If you are rated standard because of your "height and build," it means the underwriter believes you are probably a bit overweight and need to lose weight to qualify for a better risk class.
If you are rated for smoking, and you want a non-smoker rating, then you must quit smoking and avoid using any tobacco products (including nicotine patches and other cessation devices containing nicotine) for at least 12 months and sometimes 24 months, depending on the insurer.
If you received a table rating for diabetes, you can potentially get a standard rating if you are compliant for a certain period of time and your condition improves.
If you have high cholesterol, and are rated for it, you may be able to get a standard rating or a preferred rating if you eliminate the need for medication and your cholesterol returns to normal ranges.
Once the underwriting process is done, the insurance company will make you an offer you can't refuse - no, just kidding. You can refuse it if you want to. Assuming you accept their offer, you will receive an email asking you to log into your online application and document hub area.
Delivery And First Premium
Policies are delivered digitally. No paper. You'll log into your client portal, sign the delivery receipt for your policy, and download your policy (it will also be permanently stored in your client portal so you can access it there any time you want).
Once you've signed for your policy, you set up your premium payment and billing. Premiums are payable monthly, quarterly, semi-annually, or annually. You may pay your premium however you wish, but you must choose the billing option at this stage and set up your payment before the policy is considered "in force" and active.
Once I've confirmed receipt of your policy, and also confirm the first draft of your life insurance premium, you're good to go. You are now a client.
Every insurance policy has a free-look period. You are encouraged to read over your life insurance policy and… If you change your mind and don't want the policy anymore, you may send it back to the life insurance company during that free-look period and get a full refund of all premiums paid (again, keep in mind my caveat above about backing out on commitments with me before you do).
This process should not take more than 5 or 10 minutes of your time.
How Long Does The Entire Process Take?
From the first meeting you have with me, to your first premium payment, it may take anywhere from a week to 4 months (4 months is unusually long). A few factors will impact the timeline. Regardless of the timeline, I will give you my best guess estimate of how long your particular case may take.
For Accelerated Underwriting
The good news is accelerated underwriting is becoming more common. As mentioned before, accelerated underwriting is fully underwritten life insurance. It uses advanced artificial intelligence and data analytics to help underwriters dramatically speed up the underwriting process.
Straightforward cases can be done in 24 hours. More complex cases can be done in as little as a week or as long as 3-4 weeks.
For Traditional Underwriting
Traditional underwriting for most life insurance policies can take anywhere from 1 month to 3 or even 4 months. The more life insurance you buy, the more complex the life insurance plan is, or the more complex your health conditions are, the longer the underwriting process will take.
Learn More About Life Insurance
Protect yourself, your loved ones, and build real lifelong financial security. Learn (almost) everything you need to know about life insurance by reading The Rogue Agent's Guide To Life Insurance.
About The Author
David C. Lewis, AKA The Rogue Agent, is a licensed independent life insurance agent (License No./NPN: 8462895), specializing in life insurance planning and The Perfect Policy™ design concept. He is also the owner of Monegenix®. To learn more about him and his work, read his full bio.