Underwriting Life Insurance: No Sweat
Anyone who has ever applied for a large life insurance policy knows what its like to literally “sweat out” the underwriting process during a stress test on a treadmill. Insurers for years have relied on treadmill tests as part of their evaluation of applicants health and insurability.
Increasingly, though, applying for life insurance is becoming a “no sweat” proposition as more life insurers liberalize underwriting criteria.
Many insurers have drastically reduced their reliance on treadmill tests. Some have even eliminated the need for treadmill tests–and the sweating that comes with them–for certain age groups.
Stepping away from treadmill testing is only part of the recent changes were seeing in underwriting life policies. Insurers across the industry are liberalizing criteria for assessing risks and expanding the number of applicants who qualify for their best underwriting categories.
For example, applicants being treated for hypertension and cholesterol, and minor skin cancers, can now qualify as preferred risks with some insurance companies as long as their conditions are under control. Previously, applicants with such medical conditions might be considered standard risks or even rated as impaired risks.
Whats more, applicants who previously were considered “impaired risks” because of health problems and therefore were underwritten using rating tables are now being considered standard risks. Some insurers have even reduced the number of tables used for underwriting clients who have health problems, are overweight, or have poor health histories. For these companies, more than half of their clients who were previously rated now fall into this “expanded standard” class.
The liberalization of underwriting standards for both permanent and term life insurance is due to the confluence of several factors.
For one, life insurers are looking at new ways to become easier to do business with in order to encourage more financial professionals to meet the life insurance needs of clients.
In addition, life insurers are becoming increasingly sophisticated in assessing risk as new tools become available and underwriting expertise grows.
Also, mortality has steadily improved industrywide in the past several years, as people live longer due to healthier lifestyles.
Perhaps the biggest driver in liberalized underwriting is a growing trend to simplify the process of buying and selling life insurance, especially when a stockbroker, financial planner or bank representative is involved in the process.
Insurers are increasingly looking for ways to streamline the underwriting process. They are reducing the number of tests that applicants must take to qualify for coverage, cutting back on the amount of paperwork, relying on tele-interviewers to ask clients about their medical histories, and automating administrative processes such as completing applications and ordering necessary tests.
Further, they have worked to limit their use of inconvenient medical requirements. Instead, they are relying on getting much of the same health information via other means.
For instance, an attending physician statement ordinarily uncovers existing health problems. Often times, the applicant may have already undertaken a stress test as part of a regular physical exam and the results are therefore available from his or her family doctor.