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Buying life insurance for you and your loved ones is a crucial step. There can be a lot of factors taken into consideration before your insurance company can congratulate you finally on being insured with it. Underwriting is one such process at play. Let’s understand more about it here.
When deciding to buy a life insurance policy, one must take into account a number of things. For instance, their financial needs in the present and future, coupled with the unknown expenditure owing to any unpredictable uncertainty in life. Based on these factors, one can try to decide the coverage amount to go for as part of the insurance plan. Before you proceed with buying the best life insurance policy in India, you must go through all these factors in your mind.
However, this decision is not solely that of the buyer of the policy. Your insurance company plays a big role in this too. Every insurer would conduct a detailed evaluation of the prospect policyholder before deciding on the value of cover amount that the latter is eligible to apply for as part of the life insurance plan. This evaluation process is referred to as underwriting in insurance terms.
We mentioned above that underwriting in life insurance policies is essentially an evaluation of the prospect policy buyer based on a couple of factors. This assessment is performed by the insurance company basically to determine the eligibility of the applicant for the life cover.
Some of the factors taken into account by the insurer to arrive at this decision include the following:
There can be a number of more evaluation points like the above, varying from one insurer to the other, while conducting the evaluation. The underwriter, as they are known, performs a thorough check on the applicant’s entire life history. Based on their findings and analysis, they are then able to decide whether or not the applicant qualifies to buy the life insurance policy.
So why is there the need for such an evaluation? Well, an insurance company is definitely undertaking a high amount of risk when issuing a life insurance cover to a policyholder. It is only natural for your insurer then to be 100% convinced of the applicant’s eligibility for the value of the life cover that they’ve applied for. Besides, the company also wants to be sure that the policyholder has the financial ability to pay the premium timely. Life insurance underwriting helps put a lot of these doubts at rest for the insurer.
Besides this, underwriting also ensures that the claim-settlement process in the future is hassle-free. By removing all doubts about the applicant’s medical history and financial strength, the underwriters help in quick and smooth claim payouts to policyholders as and when the need arises in future. In case any discrepancy is observed in the applicant’s documents or information disclosed during the claim-settlement process, the claim would be rejected by the insurer.
This is where underwriting helps the insurer determine any discrepancy in the beginning so that such a situation does not arise for the insured and the insurer both later.
Read More: What is Paid-Up Policy In Insurance?
The process of underwriting can be broadly classified into two parts:
We explain both these parts here in detail to help you make an informed decision when applying for a life insurance policy.
This check is done based on a number of factors. Some of these include the age of the applicant, their current annual income, financial debts at present (if any), number of dependents in the household, and the like.
Based on their evaluation, the insurer would then decide whether or not the policyholder stands eligible to receive the life cover that they’ve applied for, the value of the life cover to be granted and the premium amount to decide for payment.
Note that in case the insurer is not convinced about the financial strength of the prospect, they may propose a fresh life cover or insurance plan to the latter. This offer can contain revised life coverage value and premium rate, in line with the financial ability of the prospect.
The insurer would ask the prospect policyholder to submit the following documents as part of the assessment process:
During this process, the insurer would evaluate your health condition to determine whether or not you have any serious illness likely to impact your life expectancy during the term of the policy. In case you do, the premium rate for the plan can be increased. In some cases, your application may even be rejected by the insurance company, if the latter feels that the risk is too high.
In most cases though, a hiked premium rate or a waiting period can be inserted as a clause in the life insurance policy and still issued to the applicant.
Your insurer would ask you to produce the following documents as part of the medical underwriting process:
Following the evaluation, the medical underwriter would be able to better decide the eligibility of the applicant for the life cover value applied for. It is also important for the applicant to submit all documents and facts to the best of their knowledge to the underwriter so that they can offer you the best possible life cover value for your policy.
Your insurance company may have underwriters to perform thorough evaluations of the applicant before issuing the life insurance policy. They basically help the insurer determine whether or not the life cover value applied for by the applicant is justified. Also, the underwriter would be able to assess whether the risk involved in the policy is proportional to the premium rate proposed to the prospect.
Underwriters are also expected to conduct background checks, if required, in addition to the thorough analysis conducted for the applicant, based on their documents and other history records. Based on their evaluation and findings, they can help the insurance company decide whether or not to issue the policy to the applicant and what life cover value.
The predictive analytics model is used successfully in various industries and the same model is now being replicated in insurance as well in the form of predictive underwriting. It basically implies that the insurance company is able to make certain data-driven predictions, based on analysis and evaluation of findings, to reduce the possibility of risk involved in issuing life insurance.
By being able to identify any potentially fraudulent claims in the future, the insurer can save themselves a huge cost and resulting financial loss by going through predictive underwriting at the beginning of the policy issuance process. Early warning signs (both with regard to the medical and financial strength of the applicant) can save the insurance company from a high risk in future.
Underwriting is undoubtedly one of the most crucial elements of life insurance. It can help the insurer and the insured both later during the claim payout process, ensuring a smooth and hassle-free experience for both. Do cooperate with your insurer during underwriting so that you can receive adequate financial protection for yourself and your loved ones in your absence.
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