Understanding Insurance Underwriting
When being presented with an insurance offer, you’re likely to encounter one of three scenarios:
- The offer doesn’t require an application and states that you cannot be turned down for coverage.
- An offer with a series of around 3-5 short questions, typically requiring a “yes” or “no” answer.
- An offer that includes a full application.
The first scenario is what’s called “guarantee issue.” If the product is individually underwritten, you may pay higher rates due to the increased risk to the insurance company. In a group plan (such as through an association), the rates are normally unchanged. In a plan such as dental or vision, it’s very common for the plan to be guarantee issue at all times. For life or disability insurance, these offers are usually only offered at very infrequent intervals – maybe only once every other year. These offers can be to add onto your existing coverage or to start a new policy. It can be a quick and simple way to add to your insurance portfolio with minimal effort.
The second scenario, with several “yes” or “no” questions is “simplified issue.” These questions are often referred to in the insurance world as “knockout questions” because the insurance company may consider a “yes” answer to any of the questions as disqualification for coverage. This isn’t always the case though. Certain “yes” answers may be okay or it may trigger additional underwriting activities.
Lastly, when you receive a full application, this is called “fully underwritten.” In some cases, the application information will be enough for the insurance company to approve or deny your coverage. More often than not though, they will have a paramed appointment set up with you where the company will come to the location of your choice and collect blood and/or urine samples. For very large policies, you may also have to go through financial underwriting to prove that the policy isn’t unreasonable in comparison to your assets. For instance, if you make $30,000 annually, the company may not approve a $2 million policy. It’s important to note that the fully underwritten process can take a bit of time to complete; thirty to ninety days is not completely unheard of.
We hope that this blog helps you to understand the different types of insurance offers you may receive. Of course, if you have additional questions, please feel free to comment, send a message or call us.