Life Insurance 101: Underwriting


[This is part 5 of a 9-part series. For a full overview of topics, see the Life Insurance Basics page.]

Insurance is the business of risk protection. And, insurance companies need to determine if the risk they insure is reasonable and one that they are willing to accept. Insurers do this through a process called underwriting. In the case of life insurance, the insurer needs to be sure that the applicant will not die prematurely. Underwriting is also used to determine the premium charged for the coverage. Since SGLI is issued to all servicemembers automatically without an application, many servicemembers are unfamiliar with life insurance underwriting.

The underwriting process normally looks at the following: age, gender, tobacco use, health and family histories, and the results of a physical exam. Age is a key factor in determining the premium and will often determine how extensive the underwriting process will be. Premiums increase with age and many insurers will not issue life insurance after a certain age or will limit the amount of coverage. An older person may also be restricted to shorter terms of coverage such as five or 10 years; generally, the older the applicant the more extensive the process. For example, older applicants

often require a physician's exam, additional medical tests such as an EKG or more specialized blood tests. Gender determines which premium schedule to use. Since females live longer, they usually pay a lower premium than males. Females may also have additional risk factors such as being pregnant at the time of the application. Tobacco use will significantly increase life insurance premiums and in some circumstances may cause the application to be denied or the coverage to be restricted in some manner. Most companies have criteria for being declared tobacco free. No tobacco use for two years is common.

Most life insurance applications include comprehensive questionnaires to determine the applicant's health and family history. The health portion includes a list of several diseases and physical conditions. If the applicant answers yes to having any of these, a further explanation is required. There are also questions about recent surgeries, hospitalizations, and visits to a physician. The applicant also gives permission for his/her physician to release medical information upon request of the insurer. The family history section asks questions about serious illnesses and diseases of immediate family members and the ages and causes of death if applicable. There may also be a lifestyle section which asks whether the applicant engages in any risky activities such as foreign travel, aviation, scuba diving, mountain climbing, sky diving, etc. Aviators often pay higher premiums. Driving and criminal records may also be questioned in some applications. The insurance company uses the data gathered on the questionnaires to evaluate the risk in ensuring the applicant. The questionnaires will often determine the extent of the physical examination required.

The physical examination may be conducted by a physician or paramedic depending on the underwriting criteria. A blood pressure test and blood and urine samples are commonly required. The applicant's height and weight are key factors in evaluating the risk. Obesity often results in rejection of the application. EKGs and other tests may be requested based on age, answers on the questionnaires, or other test results. The exams are usually conducted by an independent examining agency contracted by the insurer at no cost to the applicant. However, results of a recent physical examination by the applicant's own doctor may be acceptable. Some companies will accept recent military physicals. Most insurance companies also participate in the Medical Information Bureau (MIB) where they share the results of their applications. So if the applicant has been denied life insurance by another company this information will likely be available through the MIB.

As you can imagine from the discussion above, applying for life insurance can be a time consuming process. Obtaining the coverage you need is not guaranteed. Applications are frequently rejected or restricted and the company may charge a higher premium to accept the risk. Note that military service is inherently risky and companies may deny or restrict coverage based this fact alone and companies may have "war clauses" that will not pay death benefits if the insured dies in an "act of war." Servicemembers need to apply early, especially if they are deploying to ensure the coverage is approved before they ship out.  For those separating or retiring, it is important to replace the significant protection they lose when they leave active duty and to make sure they are insurable before the 120 window for electing VGLI closes.

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