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Insuring your life

August 11, 2017

Underwriting 101

Underwriting is a word you may see if you’re looking at buying insurance. Here’s what it means and how you could use it to save yourself some money.

Have you ever looked into applying for an insurance policy and wondered what the term “underwriting” actually means?

Where did the word underwriting come from?

In the 1600s, the modern concept of underwriting first emerged in the London coffee houses that functioned as unofficial stock exchanges and insurance markets. In those days, trade between the colonies and England was starting to pick up. To make sure their cargo made it safely overseas, merchants would have other wealthy businesspeople insure some of their cargo for a fee (known as a premium). Those interested in insuring the shipment would sign their names below the name of the ship and the contents they wanted to be responsible for. And so, the term underwriting was born – from people writing their names under what they were insuring.

What is underwriting?

Underwriting is the process of assessing the risk people applying for insurance present, to determine the coverage they are eligible for and ensure their premium cost reflects their level of risk. In short, your risk level ultimately decides your premium.

The underwriting process can be used for various types of insurance, such as life insurance, health insurance, mortgage protection insurance and property and casualty insurance.

After you or your advisor completes your application, it goes to the insurance company's underwriters, who are experts in assessing risk. Underwriters use manuals that provide guidelines to evaluate your risk level based on your medical, health, and lifestyle risk factors.

What is the life insurance underwriting process?

An underwriter assesses your application based on the insurance company’s underwriting guide, called a manual. This comprehensive manual includes guidelines for assessing your risk factors such as your medical history, your driving record, your use of alcohol and more. Heavy alcohol consumption, for example, could make you a riskier applicant than a non-drinker.

In general, the more coverage you apply for and the older you are, the more evidence your application requires. For example, applicants older than 71 require a mature focus interview. While requirements differ depending on your situation, these items are commonly used to underwrite applications:

  • An attending physician statement. This report gives the insurance company a summary of your medical history from your doctor. A 3rd party prepares the report to ensure it’s objective and accurate.
  • A paramedical exam. For this requirement, a 3rd-party paramedical examiner checks your height, weight, blood pressure and pulse.
  • A tele-interview. This is a telephone interview that gathers information on your lifestyle and medical history. Sometimes, a tele-interview and vitals can replace a paramedical exam.
  • A blood test/profile. For this requirement, you will be asked to submit a blood profile and a urinalysis (an evaluation of your urine) for insights on your health.
  • Vitals. A measure of your height, weight, blood pressure and pulse conducted by an approved paramedical firm.
  • A mature focus interview (MAFI). Because your risk of health problems increases as you get older, insurance companies often require a MAFI if you’re 71 or older. The MAFI examines your daily living habits and tests your cognitive and mobility skills.

Occasionally, an underwriter may also ask you for more documents, including:

  • A motor vehicle report
  • A financial inspection report

Tips for getting a lower life insurance rate

Eating nutritious food and exercising regularly has physical benefits, but it also benefits your wallet. Life insurance premiums are typically lower for healthy people with healthy lifestyles. That’s because being overweight can increase your risk of certain illnesses associated with being overweight, such as diabetes and heart disease. The closer you are to the healthy weight range, the better your chances of being charged a lower premium.

Beyond maintaining a healthy weight, you can also improve your chances for a better rate by making healthy lifestyle choices, such as avoiding smoking, drinking alcohol in moderation or even driving safely.

The bottom line

If you’re in good health, you could be better off with a life insurance or health insurance policy that calls for underwriting. A small investment of your time (and a little of your blood) could result in significant savings on your insurance costs.

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