What is underwriting?

Maria Ferrante-Schepis
Financial Health
Underwriting is the process by which an insurance carrier assesses you both medically and financially, and makes you a pricing offer for life insurance.

Medical underwriting involves an assessment of your answers to medical questions, checking your medical records and medical tests. The requirements vary based on the amount you are applying for and your age. If you have a history of a medical condition, an insurance company may ask for additional testing. Tests include measurement of height and weight, blood pressure, urine testing, blood testing and sometimes electrocardiograms (EKGs). This may seem invasive. However, these tests make it possible for the insurance company to assess your overall health risks so that they can offer you a fair price. Younger, healthier people will likely pay premiums for a longer time, whereas older, less healthy people will pay premiums for a shorter time relative to their life expectancy. That’s why older, less healthy people pay more than younger, healthier people. Underwriting ensures everyone is paying a fair price relative to the benefit they would receive when they pass away. If your health is poor, you may not get an offer; however, this happens in less than 10 percent of all cases.

Financial underwriting determines what is considered to be a reasonable amount of insurance coverage for you. It is a bit simpler and involves checking your income and assets. Usually this is done with questions and occasionally a request for documentation, such as a tax return, investment statement or paycheck stubs. Generally speaking, the maximum amount of coverage you can get is determined by some multiple of your income and assets. Some companies will insure you for up to 10 times your annual income. Others might go as high as 25 times. In other words, if you make $100,000 per year, you might qualify for up to $1,000,000 to $2,500,000 of total life insurance coverage. 
The individual health insurance market in most states is characterized by "medical underwriting." That is, insurers in this market decide whether to sell coverage (and if so, what benefits to offer and what premium to charge) based on the health status, prior medical history, age, gender, and other characteristics of applicants. Diabetes is a condition for which most medical underwriters will automatically deny coverage.

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Important: This content reflects information from various individuals and organizations and may offer alternative or opposing points of view. It should not be used for medical advice, diagnosis or treatment. As always, you should consult with your healthcare provider about your specific health needs.