Maybe you've heard the term. It might even be something you've been meaning to look into, like how to pronounce "hegemony," or the date of your mother-in-law's birthday. In this edition of THE FINE PRINT, we answer the questions: what exactly is underwriting, and why is this person in my living room?
Underwriting is an insurance company's way of assessing the risk you pose as a client.
Overwhelming? Think of it this way: If Joe, a 27-year-old non-smoking vegan jogger who only drinks on special occasions (he says he doesn't "need" it to have fun), applies for a life insurance policy at the same time as his aunt Judy, aged 67, scuba enthusiast, life of the party, and dedicated smoker of various substances, the insurance company is going to look at their applications very differently.
It doesn't mean they're not both great people, or that most of us wouldn't prefer Judy as a guest at our dinner parties. But you can probably guess who's going to be offered lower premiums.
So, the more cynical among us might be thinking, why doesn't Judy just copy Joe's application, as in the above illustration? Smoking? Never! Jogging? Always!
This is where underwriting comes in, the process by which the insurance company finds out for themselves what your health and lifestyle really look like so they can determine the likelihood of having to pay out your insurance policy anytime soon. Picture Joe quietly eating an entire cauliflower vs. Judy scuba diving while six tequilas deep.
JUST HOW PERSONAL DOES UNDERWRITING GET?
There's no way around it: insurance is personal. We're talking driving records and prescription history personal. But the degree of scrutiny depends on your age and the amount of coverage you're applying for.
If you're under 50 and applying for a policy with less than a million dollars of coverage, the underwriting process will likely consist of a tele-interview.
You'll be asked about your health, drug and alcohol use, family history, and lifestyle. And yes, extreme sports like scuba diving and bungee jumping can be used against you.
If you're over 50, or applying for a higher policy, then the underwriting process can get a little more involved. You should expect the insurance company to send a paramedical nurse to your home to do a physical examination, including the collection and analysis of blood and urine samples.
If you're male, they'll also take your chest and waist measurements, as an indicator of your likelihood of having health issues like heart diseases or type-2 diabetes.
WHILE THE IDEA OF A STRANGER STANDING IN YOUR LIVING ROOM AND STRETCHING A MEASURING TAPE AROUND YOUR TORSO ISN'T EXACTLY PLEASANT, THE GOOD NEWS IS THAT THIS EXPERIENCE MIGHT SAVE YOU MONEY.
Insurance companies invest their time and resources in the underwriting process to make sure every policy holder has customized rates based on their situation. The younger and healthier you are, the lower these rates will be.
So, do it now, with the youngest version of yourself you've got available.
Talk to a Lawyers Financial advisor about protecting your income and your family. We'll tell you the best way to get the best rates.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
