Why are there life insurance underwriting guidelines?


Life insurance underwriting guidelines are there to help the insurance company assess the risks that a person represents with regards to life insurance coverage. The underwriting guidelines seek to provide the appropriate price for the risk the insurance applicant represents.

The things that are placed in consideration during underwriting include:

  • The age and gender of the applicant.
  • The presence of insurable interest. The question is whether the policy owner has an insurable interest why he bought the policy for the person being insured. This means that there must be a financial (and in some companies, even emotional) loss should the death of the proposed insured occur. This will help prevent unscrupulous people from buying insurance for just about anybody, while naming themselves as beneficiaries as they try to profit from the death of the proposed insured.
  • The current health condition, based on vital statistics such as the blood pressure, the Body-Mass index and other tests (blood tests, urinalysis, etc.). The underwriter will check for the presence of health problems, especially for chronic and serious ones, such as heart ailments, diabetes, asthma, AIDS and so on.
  • The applicant's health history, as well as the family health history.
  • The medications being taken currently.
  • Smoking habits, if there are any.
  • History of alcohol (including Driving Under the Influence, up to a certain number of years).
  • One's occupation and hobbies that may endanger the life of the person being insured.
  • State of one's finances. This provides a maximum limit of the amount a person can be covered. This is to prevent someone from being "overinsured" - where the financial loss experienced upon the death of the proposed insured is much smaller than what his beneficiaries will receive as a death benefit. This part of underwriting will also check whether parents who are buying insurance for their child are also adequately insured. The life insurance company would normally refuse to insure a child when his parents don't have enough insurance for their own lives.

The life insurance underwriting guidelines are not cut and dried. They vary from company to company. So one company may give you standard premium rates while another will charge for preferred rates.

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