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Best life insurance companies In Canada 2022
Life insurance underwriting is a critical part in getting your life insurance policy. What should you be looking out for when you complete your application to make sure you are approved?
Life insurance underwriting
Underwriting a life insurance application is fundamental to issuing a life insurance policy. In Canada, the life insurance underwriting process determines the risk associated with issuing life insurance coverage for the applicant.
The underwriting process examines details about the applicant, including age, gender, health details, lifestyle, and occupation. Then, based on the analysis by the underwriter, there is a risk level given to the applicant. Based on this risk level, underwriting will approve or deny coverage. If approved, it will dictate life insurance premiums for a given amount of death benefit.
What is underwriting in life insurance?
Life insurance underwriting in Canada is the review of a life insurance application to determine whether the life insurance company will approve coverage and, if so, the terms on which the coverage will be offered.
Life insurance underwriting application process
The insurance underwriting process begins after the application is completed, along with a medical exam if one is required.
Each life company will have its own policy and guidelines to underwrite its life insurance products. An insurance underwriter will review a complete application and determine the risk class the applicant falls into.
Once underwriting is complete, the life insurance company issues the original policy type and coverage. Suppose the life insurance underwriter determines the applicant does not qualify for the original coverage and policy requested. In that case, they may decline coverage or offer other options.
Risk factors affecting when underwriting a life insurance policy
Underwriters look at a list of items on each application to determine eligibility and rates. The most critical factors in underwriting are age and health.
Age is a simple concept: underwriters use actuarial tables to determine how age will impact the outcome of the application.
Here is a short list of the most common risk factors that affect underwriting a life policy: heart disease, diabetes, weight, tobacco use, high cholesterol, a history of cancer, high blood pressure, HIV, and a family history of health issues.
Applicants with any pre-existing health conditions revealed in a medical exam are considered high-risk by the insurance company. In some cases, coverage may be denied altogether. In other cases, the underwriter may seek an attending physician statement to determine if the applicant poses a risk that could still be insured.
How does medical underwriting work?
Medical underwriting involves a detailed review of the applicant’s medical history and a medical exam for some types of policies.
The first step is checking the Medical Information Bureau (MIB). This is similar to checking your credit history, except it is your medical records.
Underwriters will also review the health questionnaire completed at the time of the application and check against the MIB record for discrepancies.
Underwriters will also review medical exams to check for indications of health conditions that could lead to early death and a payout of the death benefit.
A medical exam is required to buy the type of policy with preferred rates and lower premiums. These policies are issued to applicants without even a minor health issue, which lets underwriters know the risk of premature death is low.
Why is underwriting necessary?
Insurance underwriting is essential for life insurance companies to assess risk, decide if the applicant is eligible for coverage, determine how much coverage to offer, and set life insurance rates.
Life insurance companies are organizations that operate for profit; underwriting helps them know if there is a risk of financial loss with any policy.
Frequently asked questions
1. Do all life insurance policies require a medical exam?
Not all life insurance types require one. If you have been denied coverage due to health history in the past, there is still hope. You can apply for simplified or guaranteed issue life insurance policies that do not require a medical test. However, you may be limited to lower coverage amounts and have to pay premiums that are higher than for preferred policies.
2. What are the steps involved in the underwriting process?
Each company has its own specific process for underwriting a policy. In general, though, the application is submitted to the underwriting department, where one of many underwriters will be assigned to the file.
The underwriter will review the entire file, which includes the application, the health questionnaire, and medical test results.
Once the underwriter reviews everything, they will determine the outcome of the application. In most cases, the application is approved or offered a different policy if the applicant does not qualify for the original policy.
3. What does a life insurance underwriter do in Canada?
Life insurance underwriters in Canada review insurance applications to determine the risk profile of applicants. Life insurers sell life insurance products to make money for the company. As a result, every insurance application represents a certain financial risk for the company, and underwriters determine that level of risk.
Applicants with good health are determined to be a lower risk to the company than applicants with poor health. Life insurance companies will insure both, but at different rates. Applicants with risky health issues will pay higher rates than applicants with good health.
4. How long does the underwriting process take for life insurance?
When it comes to life insurance, the underwriting process is one of the most important steps. This is where insurance companies evaluate an applicant’s risk and decide whether or not to provide coverage.
In Canada, the length of the underwriting process can vary depending on the insurer, but it generally takes anywhere from a few days to a few weeks, barring any complications or delays. During this time, the insurers will review the applicant’s medical history, lifestyle, and other factors to determine their risk.
After the underwriting process is complete, the insurance company will provide the applicant with a policy that outlines the coverage and terms of their life insurance.
5. What factors do underwriters consider?
Traditional underwriting takes a very comprehensive look at all elements that could pose a risk to the insurance company if they issue a policy of insurance. This is a list of some of the most common factors underwriters review:
- Medical history of the applicant: Underwriters are looking for health conditions that could indicate high-risk, health issues such as heart disease, high blood pressure, high body mass index, cancer, and asthma, among others. These health issues pose a higher risk factor and increased mortality risk. Consequently, the applicant will pay higher premiums if these factors are present.
- Family medical history: Reviewing family history can also be an indicator of life expectancy if there is a history of cancer, diabetes, heart disease, and other hereditary conditions.
- Driving record: A driving record showing poor driving history may include DUIs and DWIs. These would be a concern for the insurance company because alcohol and substance abuse contribute to health problems.
- Alcohol and drug use: A blood test or poor driving record may reveal alcohol and substance abuse. Life insurers factor these in to determine the risk class for the policy.
- Actuarial tables: An actuarial table lets underwriting know the applicant’s life expectancy based on age. This is the number one factor that determines insurance premiums.
6. Should I be worried about underwriting?
You don’t need to worry about underwriting if you are in good health. When you apply for insurance, your insurance advisor will review the key questions that could trigger further review in underwriting. If your medical history does not indicate health conditions that could pose a risk, you should be able to get the coverage you seek with relative ease. This is especially true if you are buying a policy that does not require a medical test.
Life insurance underwriting is necessary, so insurance companies can evaluate the risk presented when providing insurance for someone.
The process allows everyone to benefit from what life insurance has to offer. The public can take advantage of the different policies available to protect their loved ones in case of premature death. Additionally, companies can continue to operate by mitigating losses when they insure the public.