The process of underwriting a life insurance application varies slightly by company, but there are common criteria used by each insurer. Underwriting allows insurance companies to classify risks and appropriately price insurance for each applicant. Most companies rank underwriting results into standard, preferred and ultra-preferred rates. When an insured is an exceptionally bad risk for the company, he may be underwritten with a table rating, which are additional premium costs above standard rates.
The first step in underwriting a life insurance policy is to verify the policy owner's insurable interest in the insured individual, defined by Insurance.com as "having an interest in that person remaining alive, or expect emotional or financial loss from that person's death."
Insurable interest can be had in loved ones, family members, family breadwinners and business partners. Without insurable interest, a policy won't be issued regardless of how favorable the other factors may be.
All insurance companies investigate the health of the proposed insured. Height, weight, blood pressure and other health factors are taken into account. Insurance companies consider their specific guidelines to be proprietary business knowledge, but the healthier you are, the more favorable your underwriting outcome will be.
To determine the health status for a new insurance application, applicants generally must have a paramedical exam performed to verify their health.
Paramedical exams are administered by qualified professionals, such as nurses and phlebotomists. It involves a personal health-history questionnaire and family health-history questionnaire as well as blood and urine tests and physical measurements of blood pressure, height and weight.
Most insurers apply financial underwriting guidelines in addition to health underwriting. Financial underwriting typically sets a ceiling of coverage you can apply for based on personal debts and income. Also, many insurers won't offer insurance on a child if the parents are not first adequately insured; this is another form of financial underwriting.
Family and Personal Health History
A health-history questionnaire can reveal the additional risks the insurer is taking on beyond the current physical health of the applicant. A family or personal history of high blood pressure or heart disease can result in less favorable underwriting decisions. Some applicants are hesitant to share their personal health history with their insurance agents, so these surveys are typically taken during the paramedical exam.