Underwriting requirements for life and health insurance

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Underwriting requirements

When you apply for a life, disability, critical illness or long-term care insurance policy, the insurance company that you’re applying to will want to know as much detail as they can about you. They will need to assess your risk in a process known as underwriting. Having an abundance of medical, financial, occupational and lifestyle information about you will help the underwriter determine if you are eligible for insurance, and if so, at what rate. Applicants considered high risk will have their policy rated, while applicants with lower than average risk may be rewarded with a preferred rate.

While it seems like you are losing some privacy with things you prefer not to share, you also benefit from this process. Imagine if there was no underwriting. The insurance companies will lean solely on their mortality tables and give you a premium based on your age, gender and smoking status. If you live a healthier lifestyle than the average person in your category, it makes no sense that you should pay the same premiums as the rest of them. Proper underwriting will ensures that your risk is thoroughly assessed so that you are offered a fair premium.

The tests and documents gathered from you is referred to as underwriting requirements. It may include blood tests, saliva tests, and other types of medical examinations. Some people fear having these tests done. Others may not want anybody to find out about their medical history. Since it is in the applicant’s best interest to perform all the tests so that the insurance carrier has a clear picture of him, we will try to eliminate the fear by explaining what the various underwriting requirements entail.

Types of underwriting requirements

There are several methods insurance carriers will use to gather more information about you. First and foremost, the application will have basic information such as coverage amount and age. The higher the coverage and the older the applicant, the more the insurance company is at risk and therefore the more information they will seek from you.

Non-medical: Applicants under 40 with less than $100,000 of coverage will likely only have to answer a few questions on the application to satisfy underwriting requirements. Common questions include the applicant’s personal history of disease and illness and history of hospitalization within the past 10 years. This underwriting requirement is referred to as a non-medical because no medical examination is necessary.

Who does it: Advisor
How long does it take: 20-30 minutes, depending on applicant’s history

Paramedical: A more thorough examination is performed by a nurse, usually at the comfort of the applicant’s home. This is necessitated by a higher coverage amount or older applicant. The paramedical replaces the non-medical and is more in-depth in the information gathered. There will generally be a weight and height measurement. The paramedical may also include a blood test to determine the amount of cholesterol, blood glucose and other biomarkers found in the blood. It’s a good idea to avoid caffeine and drink only water an hour before the drawing of blood to score more accurate test results. Food intake should be avoided within four hours of the exam, as should strenuous exercise. Wearing short sleeves or a loose-fitting top will also aid in the drawing of blood.

Other tests during the paramedical examination may include a urinalysis, saliva test and blood pressure reading. A urinalysis can detect medication, HIV virus, nicotine level and the presence of other drugs. A saliva test can uncover similar substances. Blood pressure within the desired range would reflect positively on the applicant’s health, while readings above or below this range would give off warning signals to the underwriter.

Who does it and where: Paramedical nurse, at the comfort of applicant’s home or office
How long does it take: 30 minutes

Electrocardiogram (ECG): This test is usually performed on top of the paramedical at an even higher coverage amount or older applicant. It’s a noninvasive procedure that measures the electrical activity of the heart. It can detect the heart rate, the regularity of heartbeats, any damage to the heart, symptoms of heart disease, the position of the heart chambers and any effect that drugs have had on the heart.

A variation of the ECG is the stress test ECG, which measures the heart’s ability to respond to stress, such as when exercising. In a controlled environment, the applicant is put on an exercise machine such as a treadmill or stationary bicycle with increasing difficulty, while his heart’s electrical activity is monitored.

Electrocardiography will help the underwriter detect early signs of heart disease to further accurately assess the applicant’s risk and decide if the applicant is insurable.

Who does it and where: Paramedical nurse or ECG technician, at a medical centre with proper equipment
How long does it take: 20-30 minutes

Inspection report (IR): At even higher coverage amounts, an inspection report will be required. It consists of confidential information about the applicant’s health, business, financial and personal information and is usually done over a short phone call. The applicant may be asked about among other things, his history of hospitalization, medication, nature of business, occupational hazards, salary, net worth, drinking habits and hazardous activities. The inspection report may be completed by a third party and will only be released to the insurance carrier.

Who does it: Consumer reporting agency specializing in insurance reporting
How long does it take: 10-30 minutes, depending on the applicant’s history

Motor vehicle record (MVR): At the highest coverage range and age, a motor vehicle report may be requested. A MVR details the applicant’s driving record with information about moving violations, from minor infractions such as speeding tickets, to serious violations such as hit and run and driving under the influence.

Long-term care applicants also have to do a phone interview, which involves a cognitive test. Since a long-term care policy will pay a benefit if the insured loses his independence, it’s important for the carrier to know if there are early signs of cognitive impairment.

Who does it: Professional from an approved vendor
How long does it take: Approximately 15 days to obtain

The table below shows a typical insurance company’s underwriting requirements based on coverage amount and age. Every carrier has a different table representing their contrasting views of the risk of a specific applicant.

AmountsAges
0-1717-4041-5051-6061-7071+
<$99,999Non-medicalNon-medicalNon-medicalNon-medicalParamedicalParamedical
$100,000-$249,999Non-medicalNon-medicalNon-medicalParamedicalParamedical
ECG
Paramedical
ECG
$250,000-$499,999Non-medicalParamedicalParamedicalParamedicalParamedical
ECG
Paramedical
ECG
$500,000-$999,999Non-medicalParamedicalParamedicalParamedical
ECG
Paramedical
ECG
Paramedical
ECG
$1,000,000-$2,499,999ParamedicalParamedicalParamedical
ECG
Paramedical
ECG
Paramedical
ECG
Paramedical
ECG
$2,500,000-$4,999,999ParamedicalParamedical
IR
Paramedical
ECG
IR
Paramedical
ECG
IR
Paramedical
ECG
IR
Paramedical
ECG
IR
>$5,000,000Paramedical
IR
Paramedical
IR
MVR
Paramedical
ECG
IR
MVR
Paramedical
ECG
IR
MVR
Paramedical
ECG
IR
MVR
Paramedical
ECG
IR
MVR

The carrier may also order an attending physician statement (APS), which is generated by the applicant’s family physician to confirm information on the application and to request more information. The head office of the carrier orders it, and the average turnaround time is 19 business days.

Paramedical exams and MVRs are typically valid for 6 months, while ECGs and IRs are valid for 12 months, so if you’ve applied for insurance within this time period, you won’t have to go through the tests again.

All of the medical information gathered by the carrier will be submitted to the medical information bureau (MIB, not the Men in Black). The MIB is a non-profit organization set up by life insurance companies to share information among its members. If the applicant has a file in the MIB and the information on the application contradicts it, the insurance company will be alerted of this. Underwriters will have to further investigate these errors, omissions or misrepresentations to come to a decision. You can think of the MIB as a confidential information exchange that all insurance companies are a part of, so if you’ve ever applied for life or health insurance, your file will be in its database.

Finally, your advisor will be able to put all the information on the application into perspective for the underwriter. Since he is the only party to be in touch with both you and the underwriter, he will be able to clarify some of the statements and conditions on the application. This is accomplished with a cover letter, which is usually a page or two long and details why you are a good candidate for life insurance. He should vouch for you and do his best so that you end up with the best possible underwriting decision. It should be clear why you are applying for life, disability, critical illness or long-term care insurance, what your risk management goals are, and all other relevant information left out of the application. A good covering letter may be the difference between a policy issued standard versus rated, or turn a decline into an approval. Not every advisor writes cover letters, so make sure you choose one who supports your case with one.

All of the information gathered by the underwriter will help him come to a decision of whether to decline or issue a policy and if issued, at what rate (standard, preferred, rated). It will also alert him of discrepancies between the application and test results. Therefore, it’s advisable to be honest when answer the questions on an application, since it’s more than likely that he will find out the truth one way or another.

If you have any questions regarding life and health insurance underwriting requirements, feel free to contact us.

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