Types of Underwriting
Insurance companies use different underwriting approaches depending on the type of product, coverage amount, and target market. Understanding these approaches helps explain the trade-offs between coverage availability, premium cost, and application requirements.
Full (Traditional) Underwriting
Full underwriting (also called traditional or medical underwriting) is the most comprehensive approach, involving detailed evaluation of all risk factors.
Full Underwriting Process
| Step | Description |
|---|---|
| 1. Application | Complete medical and lifestyle questionnaire |
| 2. Medical exam | Paramedical or full physical examination |
| 3. Lab tests | Blood and urine analysis |
| 4. APS | Attending physician statements when needed |
| 5. MIB check | Review of coded medical information database |
| 6. Inspection reports | Background and financial checks for large policies |
| 7. Risk classification | Assignment to appropriate risk class |
Characteristics of Full Underwriting
| Characteristic | Description |
|---|---|
| Timeline | 4-6 weeks typical; can extend to months for complex cases |
| Coverage amounts | No limitations on face amounts |
| Premiums | Lowest for approved applicants in good health |
| Death benefit | Full coverage from policy issue date |
| Target market | Applicants seeking lowest premiums and large coverage |
When Full Underwriting Is Required
- High face amounts (typically $500,000+)
- Older applicants (age 50+)
- Applicants with known health issues
- Business insurance applications
- Estate planning policies
Simplified Issue Underwriting
Simplified issue products require no medical examination, relying instead on a health questionnaire with a limited number of questions.
How Simplified Issue Works
| Feature | Description |
|---|---|
| Medical exam | Not required |
| Health questions | 8-15 questions about specific conditions |
| Lab tests | Usually none; some may check prescription database |
| MIB check | Typically included |
| Decision time | Days to 1-2 weeks |
Simplified Issue Health Questions (Examples)
Typical questions might include:
- Have you been diagnosed with heart disease, cancer, or diabetes?
- Have you been hospitalized in the past 5 years?
- Do you use insulin?
- Have you ever been treated for drug or alcohol dependency?
- Are you currently receiving disability benefits?
Characteristics of Simplified Issue
| Characteristic | Description |
|---|---|
| Coverage limits | Typically $50,000 to $500,000 |
| Premiums | Higher than fully underwritten policies |
| Death benefit | Full coverage from day one (if approved) |
| Best for | Busy professionals, those with minor health issues |
Exam Tip: Simplified issue policies have higher premiums than fully underwritten policies because the insurer accepts more unknown risk by not requiring medical exams.
Guaranteed Issue Underwriting
Guaranteed issue products offer coverage without any medical questions or exams. Acceptance is guaranteed if the applicant meets basic age requirements.
How Guaranteed Issue Works
| Feature | Description |
|---|---|
| Medical questions | None |
| Medical exam | None |
| Health requirements | None—acceptance is automatic |
| Eligibility | Usually based on age only (e.g., ages 50-85) |
Characteristics of Guaranteed Issue
| Characteristic | Description |
|---|---|
| Coverage limits | Low—typically $5,000 to $25,000 |
| Premiums | Highest among all underwriting types |
| Graded death benefit | Common—full benefit only after waiting period |
| Best for | Those who cannot qualify for other coverage |
Graded Death Benefit
Most guaranteed issue policies have a graded death benefit (also called a waiting period):
| Time Period | Death Benefit |
|---|---|
| Year 1 | Return of premiums paid (plus interest) |
| Year 2 | Return of premiums paid OR partial benefit (e.g., 50%) |
| Year 3+ | Full death benefit payable |
Exception: Accidental death usually pays the full benefit from day one.
Common Guaranteed Issue Products
- Final expense insurance
- Burial insurance
- Senior life insurance
- Group life insurance for new employees
Accelerated (Automated) Underwriting
Accelerated underwriting (also called instant-issue or digital underwriting) uses technology, algorithms, and database checks to make rapid decisions without medical exams.
How Accelerated Underwriting Works
| Step | Process |
|---|---|
| 1. Online application | Applicant completes detailed questionnaire |
| 2. Data checks | Automatic queries of MIB, prescription databases, MVR |
| 3. Algorithm scoring | Predictive models assess mortality risk |
| 4. Real-time decision | Approved applicants receive instant offer |
| 5. Fallback | Some applications routed to traditional underwriting |
Technology Used
| Technology | Purpose |
|---|---|
| Prescription databases (Rx) | Reveals medications and conditions |
| MIB check | Reviews previous application information |
| Motor vehicle records | Assesses driving behavior and risk-taking |
| Credit data | Evaluates financial stability |
| Electronic health records (EHR) | Real-time medical data (emerging) |
| Predictive analytics | Algorithms estimate mortality risk |
Characteristics of Accelerated Underwriting
| Characteristic | Description |
|---|---|
| Decision time | Minutes to hours |
| Medical exam | Not required for approved applicants |
| Coverage limits | Typically up to $1-3 million |
| Premiums | Competitive with fully underwritten policies |
| Availability | Varies by carrier and applicant profile |
Who Qualifies
Accelerated underwriting typically works best for:
- Younger applicants (under age 50-60)
- Good health with no major conditions
- Non-smokers
- No recent medical issues
- Clean driving record
Comparison of Underwriting Types
| Factor | Full | Simplified | Guaranteed | Accelerated |
|---|---|---|---|---|
| Medical exam | Yes | No | No | No |
| Health questions | Yes | Limited | None | Yes |
| Decision time | Weeks | Days | Immediate | Minutes-hours |
| Coverage limits | Highest | Medium | Lowest | High |
| Premium cost | Lowest | Medium | Highest | Competitive |
| Death benefit | Full | Full | Graded | Full |
Key Takeaways
- Full underwriting is the most thorough approach, offering lowest premiums but taking longest
- Simplified issue requires health questions but no medical exam, with moderate limits and premiums
- Guaranteed issue accepts all applicants but has highest premiums, lowest limits, and graded benefits
- Accelerated underwriting uses technology for instant decisions without medical exams
- Graded death benefits on guaranteed issue policies protect insurers from immediate claims
- Accelerated underwriting is best for younger, healthier applicants
A guaranteed issue life insurance policy would most likely include:
Which type of underwriting would typically offer the LOWEST premiums for a healthy applicant?
Accelerated (automated) underwriting typically uses all of the following EXCEPT:
A simplified issue policy differs from a guaranteed issue policy in that simplified issue:
12.4 Policy Delivery
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