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Digital Life Insurance, Speed and Fit

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What You Need to Know

  • Simplified underwriting can speed the application process up.
  • Full underwriting can be fast, too.
  • Some clients may get better, cheaper coverage if they go with full underwriting.

Your clients’ time is precious. When juggling careers, families, friends and hobbies — all in the midst of a pandemic — there isn’t a lot of extra time available.

So, when you’re helping clients choose the right financial protections for themselves and their families, they expect swift insights and actions. The rise of fintech companies, from digital consumer banks to tech-based mortgage lenders, has certainly helped make their (and your) lives easier.

Life insurance has taken longer than most other financial services industries to modernize and speed up. The good news, however, is that digital life insurance options are rapidly increasing, providing consumers with more choices. Many of these insurtechs have now also expanded on their original direct-to-consumer capabilities to partner with agents and advisors, in order to serve shared clients (not to mention finally give advisors a response to clients’ time demands).

However, as digital life insurance becomes a primary source for clients’ life insurance needs, it’s important to remind clients that finding the right coverage is about more than getting the fastest available offer. Understanding the different underwriting approaches for each of these products is critical, as it can impact what policies and protections are available to clients, and how much they’ll have to pay to get coverage.

The Digital Underwriting Paths

There are two types of underwriting pathways for digital life insurance: fully underwritten and simplified. (There is actually a third type, guaranteed issue, but let’s put that aside for now, given that guaranteed issue life insurance usually isn’t used as a long-term financial planning tool.)

Organizations with fully underwritten strategies and simplified strategies both have radically sped up the timeline for getting coverage.

At the most basic level, a fully underwritten policy is priced assuming the insurer is covering individualized risks based on a comprehensive medical history. This strategy requires an applicant to complete a full medical history. That information is then supplemented with third-party data, to evaluate whether the insurer can make an instant offer.

If yes, a policy can be issued within minutes.

If no, but a client might still qualify for coverage based on additional information, a medical exam might be requested to help get that policyholder covered. This might lead to going to a clinic to get a blood draw or provide a urine sample.

More on this topic

Then there is a simplified policy. This requires an applicant to submit a shorter application with an abridged medical history, which is again supplemented with third-party data. At that point, an instant decision is made by underwriting — either yes or no. Labs are never required. It’s important to note that, traditionally, simplified policies were designed to provide coverage for less healthy individuals — albeit offered at higher monthly premiums. That’s changing, but more on that below.

Ultimately, when advisors explain these options to clients, most hear “instant” or “lab possibility.” What they don’t hear is the nuance about how likely they are to get approved for specific policies or, based on their health, whether they will get the best rate class for their desired policy. That’s where financial advisors can provide value for clients, by helping them find the best plans to fit their needs.

Considering the Options

When helping clients decide on the digital life insurance option that is right for them, there are a few things to consider.

First, it is important to stress that, when it comes to a fully underwritten product that might require labs, insurtechs have already cut down the traditional application and underwriting process from months to days. Also, remember, fully underwritten doesn’t always require labs. In some cases, fully underwritten clients can get an instant decision.

Second, clients looking at a simplified product shouldn’t be lured into a false sense of certainty that an “instant decision” will be an “instant yes decision.” That’s not always the case. Because simplified products don’t allow for nuance — say, further analysis of why a certain medication is prescribed or whether an applicant’s chronic condition is well-managed — there is an elevated chance of coverage denial.

This is especially true for clients with more complicated health diagnoses. Applicants with a history of cancer, diabetes, or heart disease, for example, may require full underwriting to get to an offer. Why? While simplified policies were originally intended for less healthy individuals, as the ease of applying for such policy through an insurtech has become more attractive to time-strapped healthy individuals, it has subsequently increased rates of denial for less healthy applicants.

Given this, it is important for clients to understand that not every digital life insurance company is the same, and that underwriting strategies vary. For example, insurtechs that only offer instant or simplified products have no ability to service applicants if they’ve been rejected or declined. On the other hand, carriers that offer both have multiple avenues to help applicants get to a yes.

Helping Clients Make the Right Decision for Them

So, how should financial advisors help guide clients?

While every client is different, here are a few considerations to help them get started when evaluating a digital life insurance policy:

  • Gather their general medical history. Regardless of which option they choose, applicants will have to input their medical background one way or another — and it can be helpful to have everything in one place when getting started.
  • Based on the medical history, help clients to research their options. They should consider whether the insurtech offers just a fully underwritten product, simplified solution or both.
  • Help healthy applicants understand the tradeoff between faster simplified underwriting and fully underwritten options. For less healthy applicants, set the expectations that they may have to pay more and that issuers of certain products may not accept them.
  • Evaluate how much coverage is needed to financially protect an applicant’s loved ones. Generally speaking, simplified-issue policies tend to have lower face values than fully underwritten products.
  • Consider whether existing coverage is in place. While a healthy individual, for example, can likely get the most affordable and comprehensive coverage by going through the fully underwritten process, if the possibilities of labs will be a deterrent to applying for any coverage and none is already in-force, a simplified policy could be the way to go.

At the end of the day, this is a personal decision. Life insurance is not one-size-fits-all. What matters most is that clients find the policy that best fits their unique needs.


Yaron Ben-ZviYaron Ben-Zvi is CEO of Haven Life.