What Is Underwriting In Insurance Guide 2024

Elaine Brookes Steve Case

Author: Steve Case - Insurance Expert

Reviewed & Fact Checked By: Elaine Brookes

Updated: 8th December 2023

what is underwriting in insurance?

Before an insurance company accepts an application, it must first decide whether granting a person life insurance would be profitable. Insurers do that by evaluating the risk involved.

If the risk is too high – simply put, there’s a high risk an insurer will lose money – they will likely decline the application. However, if the risk is acceptable, the insurer will evaluate numerous factors (age, job, health, etc.) and calculate an appropriate monthly premium sum according to the risk they would have to take. 

That evaluation process is called insurance underwriting. In this What is Underwriting in Insurance guide, we’ll examine how this process works, the factors that might affect it, and how long it usually takes. 

What Is Life Insurance Underwriting?

Underwriting in insurance refers to the process of an insurer evaluating the risk and profitability of accepting someone’s insurance application.

Based on that process, the insurance company can decide whether they are taking any gamble offering a policy. For instance, an insurer may opt out of providing coverage if there’s a high risk of paying out. 

After all, insurance companies aren’t charitable foundations, and they want to ensure they can make money from their services. 

life insurance underwriting process

How does underwriting in insurance work?

It’s a complex process that involves an insurance underwriter analysing various data and statistics to determine the likelihood of numerous risks.

Based on that, an insurance company can decide whether the risk level is acceptable and, if yes, how much a monthly premium should be. 

What can determine the risk level and premiums? Several factors, including:

  • age – the older you get, the higher the risk;
  • occupation – individuals performing high-risk jobs, such as firefighters or police officers, can expect higher premiums;
  • health conditions – although it depends on the severity of the condition, people with health problems are deemed high-risk individuals by insurers (e.g., diabetics, addicts, asthmatics, etc.);
  • hobbies and lifestyle – if you have a high-risk hobby (motorsports or skydiving, for instance), an insurer is likely to offer you higher insurance premiums; the same goes for smokers or drug users, as they are at higher risk of developing specific conditions.

However, remember that each insurer might have different acceptance criteria, so be sure to ask around and compare various companies and quotes to see whether you qualify for a policy you want to buy. 

Insurance Underwriting Process

Insurance underwriting is performed by a professional insurance underwriter. Underwriters are trained insurance professionals specialising in evaluating and calculating the risk of providing insurance and financial services. 

They analyse numerous data and factors, such as an individual’s health history, lifestyle, hobbies, age, etc. Based on that information, they calculate the final risk for an insurer, who can decide whether to accept or reject an insurance policy application. 

Now, as for the underwriting process itself, its exact route might depend on the insurer.

However, in most cases, the process involves the following steps:

  1. Reviewing the application. An underwriter will review your application and analyse the information to determine the risk. They will look at such factors as age, occupation, hobbies, lifestyle, health history, etc.
  2. Deciding whether the company should offer coverage. Once an underwriter reviews your application, they will share their assessment with an insurer, who will decide whether offering you coverage would be profitable.
  3. Recommending the policy type. If the company accepts your application, an underwriter will re-evaluate it to determine what type of coverage would work best for your situation and risk level. The underwriter might suggest deductible options and other modifications to further lower the risk on the insurer’s side. 
  4. Determining the insurance pricing. Once an underwriter determines what type of coverage would be the most profitable and low-risk, they will decide on the premium pricing that best suits your situation and risk. As said, the higher the risk of an insurer paying out, the higher the premiums will likely be. 
  5. Assessing the coverage. An underwriter might become involved even after your policy starts. For instance, if you, for some reason, stop paying your premiums or have trouble paying them on time, the underwriter might assess your current policy to decide whether you’re still applicable to current policy conditions.

What May Impact the Insurance Underwriting Process?

As said, the insurance underwriting process is quite complex. It involves an underwriter analysing a lot of data and multiple statistics.

As for the most significant factors that could affect the underwriting process and, as a result, your policy premiums, these include the following:

  • Medical exam. Although not all policies require you to undergo a medical exam (over 50s life insurance policies, for instance), in most cases, you will need to undergo a medical examination to determine your health risk. The insurer will also likely check your medical history to see whether you have any pre-existing conditions, such as diabetes or asthma. 
  • Family health history. Your family history might impact your risk levels and premiums. Suppose there’s a history of certain diseases, such as cancers or genetic diseases. In that case, an underwriter will likely deem your application a higher risk, even if you don’t have such a condition yourself. 
  • Lifestyle. If you’re a smoker or often consume alcohol, you’re at risk of developing certain health problems, such as cardiovascular diseases or specific types of cancer. In such a case, an underwriter might recommend, for instance, a specific type of insurance for smokers that usually have higher premiums. 
  • Occupation. Some jobs are more hazardous than others. For instance, a police officer, a military personnel member, or a firefighter. In such cases, an underwriter will also likely classify such individuals as higher risk as they are more likely to get injured or even die on the job. 
  • Hobby. If you often participate in injury or life-threatening activities, such as skydiving, hang gliding, rock climbing, etc., the risk of an insurer paying out rises, which means higher premiums. 
  • Credit history. Although it may not seem connected to life insurance, an underwriter will treat your credit history as an indication of your risk. If you have a good credit score, an underwriter will treat it as an indicator that you’re more likely to pay your premiums on time, deeming you a lower-risk individual, which should result in lower premiums. 

Of course, these factors are merely a part of all the data an underwriter analyses. They are, however, the most important factors to consider when applying for a life insurance policy, and it’s imperative not to lie or manipulate them.

If you decide to cover some facts to enjoy lower premiums, this can result in an insurer not paying out the insurance claim. 

How Long Does the Underwriting Process Take?

That will depend on the insurer and the type of the underwriting process. Usually, it takes between 45-60 days to complete insurance underwriting, although it can be faster or longer than that. 

As for the types of insurance underwriting, there are two primary ones – traditional (full) and accelerated

Traditional insurance underwriting involves a thorough examination and analysis, including comprehensive medical exams and lab testing. An accelerated underwriting process allows you to skip the exam process, relying on data tools and algorithms instead. 

The accelerated method is faster, but the traditional method provides better and more thorough results. Also, remember that you can accelerate your underwriting process by providing your insurer with all the necessary documentation beforehand. 

What Is Underwriting In Insurance: Final Thoughts

So yes, as scary as insurance underwriting may sound, it’s actually a natural part of your insurance policy application assessment. It doesn’t require any work from you.

The only thing to remember is to be honest when filling out your application and ensure you don’t lie about any conditions or lifestyle. 

It will allow an underwriter to analyse your case faster and ensure you’re appropriately insured. It will also ensure that the claim is paid out when the time comes. 

With that said, find your best policy today and stay covered. Use our calculator to find the best insurance policy quote for your specific needs and enjoy the peace of mind you and your loved ones will get no matter what.