Critical Life Insurance – Understanding Underwriting

Underwriting policies apply to critical life insurance policies, just as they apply to other types of insurance such as life insurance, health insurance and car insurance.  The reason for this is that insurance companied need to be assured of the applicant’s credibility and personality.  More importantly, insurance companies want to keep their risks (i.e. the percentage of claims) as low as possible so that they can make a profit.

Standard underwriting procedures for critical life insurance policies mainly determine two things:  whether or not the applicant is capable of paying his or her premiums and whether the applicant is likely to be critically ill or to make a claim.  Apart from that, basic information about the critical life insurance applicant – say, address, contact number/s, employment records, spending habits, and the like are also discovered through the underwriting process.

The Pre-Screening Questionnaire

The pre-screening questionnaire includes a list of illnesses or conditions that the insurance company cannot insure.  The purpose of this is to save time and effort both on the part of the company and the applicant.  In most cases, an applicant – upon finding out that an illness for which he or she wishes to be covered is uninsurable – will back off and look for another insurance provider.  Thus, no time and resources are wasted on both sides:  the applicant and the insurance company.

Family Medical History

The applicant’s family medical history is also discovered and ascertained in the underwriting process.  This is crucial for a good number of the critical illnesses covered in critical life insurance policies are typically associated with genetics; statistically speaking, an applicant who has a parent, grandparent, sibling, aunt, or uncle who has been diagnosed with a covered critical illness is much more likely to contract the same illness than someone who does not have the same family medical history.  Thus, applicants who have a family history of critical illnesses may not be approved for a policy or may be charged a higher rate of premium payments.

Personal Health

An applicant’s personal health is also thoroughly reviewed.  His height and weight should be acceptable according to commonly followed health standards.  Instances of hypertension are also closely scrutinized as persons who have hypertension are more likely to acquire a critical illness later on.  A medical practitioner’s report and findings from medical check-ups such as urinalysis, blood analysis, x-rays and the like are carefully reviewed.

Lifestyle

An applicant’s lifestyle is also taken into consideration.  Is he or she a smoker?  If so, how many does he or she smoke in a day?  Is he or she a workaholic?  Does he or she drink occasionally or is he or she an alcoholic?

Financial Capability

The applicant’s financial resources are also ascertained in the underwriting process to ensure that the applicant will be able to pay the insurance premiums.  It also helps in determining the type of policy that matches the applicant’s finances.  Normally, an insurance company insures up to five or seven times more than the applicant’s current basic pay.

Underwriting Guidelines

Not all applicants who fail to pass one or two of the insurer’s requirements are rejected.  Insurance companies usually have additional guidelines that apply in such cases.  A higher premium rate may be required, for instance; this is justified by the higher risk that the applicant presents to the insurance provider.  The underwriter may also include special provisions; pre-existing conditions and conditions that are highly likely to occur given the applicant’s lifestyle and family medical history may be explicitly excluded in the policy.