Insurance underwriting is nothing but an assessment that tells you what value of life cover you are eligible for. There are several factors that are taken into consideration during the underwriting process. Take a look at this article to know more.
There are many different insurance concepts that you must be aware of when you look to buy life insurance. One of them is the concept of underwriting.
Understanding Insurance Underwriting
As stated, life insurance underwriting is an assessment of the various factors of your life to understand whether or not you are eligible for the life cover you applied for. The factors include your age, your income, your health conditions, your existing financial liabilities etc. Basically, the underwriter does a thorough analysis of your life and life conditions to ascertain whether or not you would be a suitable candidate for the policy. Every insurance provider takes a risk upon itself when selling a life insurance policy. This holds true for all types of life insurance including term life insurance, endowment insurance, whole life insurance, etc. to ensure the risk is justified and the policyholder will be able to pay the premiums on time, the underwriting process is carried out.
Who is an Insurance Underwriter?
An underwriter is someone who works on behalf of the insurer to assess whether the risk of the insured’s life is worth the premium he is offering or not. So, an underwriter’s job is to check to carefully analyse the applicant’s data and documents and find discrepancies, if any and confirm if they are eligible for the life insurance policy that they have applied for. They can also perform background checks if needed.
Types of Underwriting in Life Insurance
There are mainly two types of insurance underwriting that happen when a person applies for a term insurance policy or any other type of life cover. They are:
Financial Underwriting
Term life insurance covers your life for a fixed period of time. In return, you are expected to pay the premium to the insurer. When checking your eligibility during the underwriting, the insurer examines your financial strength. They look at your income, age, existing economic liabilities, the number of people dependent on you, etc.
Once the insurer is satisfied that you can afford the cover with your finances, the policy is issued to you. If not, then modifications are made and the insurer makes a fresh offer to you. In terms of coverage value and premium amounts.
The documents that are checked by a Financial Underwriter are:
Income Proof:
- Salary slips, TDS certificates, Form 26AS, Income Tax Return, etc.
- Bank account statements, credit score
- Profit and loss statement, board resolutions, etc. for a company
KYC documents:
- PAN Card,
- Aadhaar card,
- Utility bills such as electricity bills, telephone bills, etc.
They may ask for other documents if they find it necessary.
Medical underwriting
The next important component is the medical underwriting. Your health is directly related to the quality and length of your life. This is why medical underwriting is so crucial in life insurance. The insurer closely scrutinized your health conditions to understand how likely you are to die (or not) during the policy period.
If you have a high risk of dying owing to your health conditions, the premium may be hiked. In extreme cases, the insurance provider may even reject your application. However, this is uncommon and even people who have health issues get a life cover with clauses such as a higher premium or a waiting period. So, basically, a medical underwriter needs to gather details such as:
- Previous ailments and pre-existing diseases
- Doctor’s prescriptions
- Medical examinations with samples, as necessary
- Family medical history
Based on these reports, a medical underwriter needs to analyse and confirm whether the life insurance policy can be offered to the applicant at the agreed price or not. The applicant needs to disclose all material facts so that the medical underwriter can make an informed decision. These are the two main ways in which insurance underwriting takes place. If you are in the process of buying a term life insurance policy or other types of life insurance, make sure a proper underwriting process happens as that will help you to have the most appropriate life cover. The importance of insurance underwriting
Insurance underwriting is extremely important as it paves the way for a smooth and hassle-free claim payout in the future. You buy a term life insurance policy and the other life covers to ensure your family is financially secure after your demise. If you are not clear during the underwriting process or you knowingly withhold any information simply to have a lower insurance premium, your family may have to pay a heavy price later. At the time of a claim, the insurance provider will carry out a thorough check and if any discrepancy is found, the claim will be rejected. Avoid putting your loved ones in such a situation by agreeing to a correct underwriting process and paying the term life insurance premium you are expected to.
Conclusion
As you can clearly see from the points mentioned above, the process of underwriting life insurance is a crucial one. After you apply for the plan, the insurance provider will get back to you and schedule an appointment for the underwriting. You must submit all the documents and undergo the premium policy health screening. Volunteer to do everything that the insurer asks for as this will help you and your loved ones in the long run. An error at this step can prove to be costly later on, so be transparent and honest and the process will become smooth and easy.
Also Read: Understanding Claim Settlement Ratio: Why It Matters When You Buy Term Insurance Plan
