- 3-Minute Article
The Top 5 Myths About Underwriting
Debunking a few common misperceptions about the science of underwriting.
Underwriting is how a life insurance company assesses the mortality risk of applicants, based on their age, health habits, medical history, and occupational and recreational activities. No two people are exactly alike, so insurers leverage the law of large numbers to balance everyone's risk and cost-effectively spread the financial losses among the insured group.
Underwriting uses mathematics and science to evaluate personal risk. Because it seems complicated, there are many misconceptions surrounding the underwriting process.
Here are five common myths about underwriting life insurance that should be laid to rest.
Myth 1: Life Insurance Underwriting is Complicated
Like all financial contracts, life insurance policies contain language that may seem confusing at first. For those who are unfamiliar with the process, it can be overwhelming, especially if you have a client with a complex medical history. Fortunately, most large insurers have entire teams of specialized professionals dedicated to helping financial advisors and their clients navigate the process as quickly and easily as possible.
Myth 2: Insurers are Inflexible and Unyielding
Many advisors have clients whose underwriting criteria may appear less than desirable. The client's rating may negatively affect the amount of coverage they are offered and the cost of that coverage. In some cases, it may even prevent clients from purchasing any coverage at all.
It's important to remember — not all life insurance policies or companies are alike. Many insurers have flexible underwriting guidelines or offer unique programs to insure certain individuals when other companies won't.
Myth 3: Underwriting Takes Too Long
Underwriting takes time, that's true. But when you consider the amount of work happening behind the scenes, it's easier to understand why.
During this process, the insurer assesses the candidate's risks, including age, lifestyle and medical history. To better gauge these risks, insurers ask a series of questions. In some cases, a medical examination and an attending physician statement may be required, which involves working around the client's busy schedule. In general, your client's health determines the speed of the process.
Many insurance companies understand the frustration this wait may cause advisors and their clients, and have developed simplified and speedier underwriting programs, with decisions available in just a few days.
Myth 4: Underwriting Hasn't Evolved
Advancements in medicine and technology in recent years have completely revolutionized the way insurers underwrite policies. The availability of data provides insurers with insights that are far more accurate, which makes the underwriting process more efficient, resulting in happier clients and more business.
As underwriting becomes more automated, it's also becoming more customized. While these changes may not be obvious to the outside world, they're helping create efficiencies that benefit the client, the advisor, and the insurer.
Myth 5: Underwriting is Redundant
Many life insurance companies sell a variety of policies like life insurance, disability insurance and long-term care insurance that utilize much of the same underwriting criteria. But if a client is interested in more than one of these products, they don't want to go through the same underwriting process multiple times. Many insurers now work hard to make cross purchasing more seamless. Life insurance products with a collaborative underwriting process and shared systems provide a better client experience.