Life Insurance Underwriting – Demystifying The Black Box of Underwriting
Sex, Drugs and Genetics
One of the most effective ways of reducing your cost of life insurance is by improving the rate class or making sure to get the best class possible when buying new coverage. Once you decide to purchase a life insurance policy, the process of underwriting begins. Life insurance underwriting is the process allowing an insurance company to determine the appropriate rate class for your policy. It is important because the rate class determines the premium. There are many different rate classifications, usually starting at preferred. Most companies use a system with 16 extra classes – the highest rating being a Table 16.
A system of credits and debits.
Overweight by 20 pounds? On high blood pressure medication? Smoke an occasional cigar or occasionally use marijuana?
Most people feel certain that any one of these will cause their life insurance premiums to be higher. In most cases, not one of them will increase the rate or knock you out of standard rates.
You should expect to pay the lowest possible premiums and receive the best rate class each company offers, based on your specific information. It is the responsibility of your agent to get you the best rate by giving the underwriters all the information in the best light possible. Underwriters convert positive information into credits and negative information into debits. More information is better. Still, too many people are not paying the lowest possible premiums.
The difference between one or two rate classes can lower premiums by 20% or more, annually.
Life insurance underwriting is a blend of art, skill and experience. The key to getting the lowest rates possible is full disclosure on your part. The improvements in medical sciences are leading to lower premiums. These improvements lead to more people reaching life expectancy, resulting in decreasing premiums. In other words, the rates you are paying on policies issued several years ago are likely MORE than new policies issued today, even though you are older. If you are in similar or better health, you should be able to reduce your cost of life insurance.
The following issues require good life insurance underwriting management. A good underwriter will consider many factors to determine your rate class. The more information you and the agent provide to the carrier, the better your chances will be in creating maximum credits:
Extra weight. Most people carrying extra weight miscalculate by a lot how their premiums will be affected. Typically, unless the extra weight puts you in the obese class or is causing other medical problems, added pounds do not automatically warrant any rate increase.
Cardiovascular issues. Many life insurance companies excel at underwriting these cases. If there is good follow up and control, many insurance companies will consider standard rates after a few years.
If you have had cancer in the past, you have a reasonable chance of getting a policy with standard or preferred rates, depending on the history and your current health. Do not assume the worst; this is a classic mistake made by people and their advisors, including their physicians. I have many clients with cancer history who now have standard rates.
People with Type 1 diabetes typically have impaired life expectancy across the board, so your rates will depend on how well controlled your condition is and what you need to control it. If well controlled, Type 2 should lead to a smaller spike in rates. Diabetes is complicated and requires excellent underwriting.
Mood Stabilizing Drugs, Depression, Psychotherapy. If you’re taking medication for an ongoing condition such as anxiety or depression (meaning it’s more than just a temporary state due to, say, a loved one’s death), you will probably see higher rates, but typically not what most people expect. The insurance industry needs to review these issues regularly as the medications are better and untreated anxiety and depression is far worse.
Family history. If immediate family members have had serious or hereditary conditions, that may prevent you from getting preferred rates. The biggest culprits here are cardiovascular disease (especially if a parent died from it before 60), cancer and diabetes.
Cholesterol & High Blood Pressure. Controlled high cholesterol and blood pressure, by themselves, typically do not add extra cost or deny you preferred rates. With these conditions, it is all about control and stability.
Nicotine use. The use of nicotine comes in many delivery systems and life insurance companies are not consistent about this topic. Using the Installment Payout Option can help smokers reduce their premiums by as much as 40% per year.
Driving History. If you have more than two moving violations in the last three years, you likely won’t be able to get the best life insurance rates. Time is your friend here, even for the most serious offenses.
Substance abuse. It is impossible to generalize with substance abuse history. However, with full disclosure and a strong record of non usage, life insurance can be obtained at standard rates.
Lifestyle/Career Issues. Any hazardous, regular activities such as rock climbing, motorized racing, skydiving, ultralight flying, hang gliding, and scuba diving could increase life insurance premiums.
While some companies increase rates for firefighters and police officers, many do not.
Full disclosure and working with an experienced agent is crucial. Knowing which companies excel in the each area and then not being afraid to challenge underwriters are some of the advantages you will get from an experienced professional.
Want to learn more? Please contact me at 561-869-4500 or by email. I will clarify and answer any questions on a complementary basis.”
Ted Bernstein Boca Raton Florida
Also published on Medium.