Haven Life and it is approach to life insurance (innovative utilization of technology; providing an event that is fast and pleasant) are new, but the idea of insurance itself is very old, dating back to around 3000 B.C., when Babylonian traders and merchants started pooling profit order to protect themselves financially against loss (that was often caused by pirates). Throughout the intervening 5,000 years, insurance products have become modern-day, but underwriting has always been at its core.
This raises two questions: What is underwriting, anyway? And just how does it affect you?
“Underwriting is evaluation of risk,” says Laura Boylan, Haven Life's head of underwriting services. Essentially, an insurance coverage underwriter assesses the riskiness of an applicant, determines whether their company should insure that individual, at what price, and for what amount of coverage. “This holds true for those kinds of insurance,” says Laura, including home, in which the “risk” would be damage to a house; auto (harm to an automobile); and, obviously, life insurance, where the thing underwriters call “risk” is generally known as “death” through the rest of us.
While the concept is simple (evaluate risk, attach a price to it), the danger assessment and underwriting process is becoming especially complex in recent decades. The modern life insurance policy began with the industrial revolution in the 1800s, however the underwriting process was fairly basic before the 1940s. Until then, insurance costs were based positioned on age. After that, insurers started considering gender, too (male mortality minute rates are generally greater than female rates). Using the creation of more technology and much more data in the second half of the Twentieth century onwards, however, the plethora of factors which insurers consider has expanded, as has their ability to consider them at length.
Underwriting, and insurance in general, is dependant on “the law of big numbers,” says Laura. “We can't know an individual's degree of risk precisely, but we can obtain a good degree of precision for any group when the group is big enough.” Therefore, insurers look at a person in terms of age, health, behavior along with other factors, then assign that individual to a particular “risk bucket.” These are called “rate classes” within the insurance world. While you are offered an insurance plan tailored to you, it's actually based on the rate class that you have been assigned to, based on your own personal data.
So exactly what do insurers assess to be able to put people into rate classes, and therefore determine the insurance policy you'll be offered?
Your physical health
Physical health can also be another factor that is considered in underwriting guidelines. “For life insurance coverage underwriting we're taking a look at a number of dimensions, such as medical,” says Laura. “We take self-reported medical histories, data such as prescription history, family history, tobacco use, and evaluate it all to obtain a deeper understanding of applicant health.” Sometimes a health check will form a part of that data, although “at Haven Life life we have a no-medical exam procedure that allows some applicants to become issued an offer within 40 seconds. It is a wonderful experience for those who qualify,” says Laura. For all those applicants who do require a test, she has some useful advice: “Just because you should perform a health check, it doesn’t necessarily mean your premium will be higher – it simply means the company doesn’t have sufficient specific information to become positive about its decision without fluids.
Your financial health
“There's additionally a financial element for your risk assessment: ensuring an insurance policy is suitable for an individual's financial situation,” says Laura. Obviously, an insurance company wants to know an individual has the income to afford their premium, but beyond that, can a person be over-insured? “We want to make sure the death benefit is suitable,” says Laura, “just to make sure all the incentives are aligned appropriately.”
Another factor considered by underwriters is behavior, which includes “driving history, occupational background and hobbies,” says Laura. Unsurprisingly, a firefighter who races motorcycles in the free time will usually pay more for a lifetime insurance coverage than someone who works in an office and spends weekends in their garden. But for less extreme examples, isn't concept of dangerousness subjective? How do insurance companies define “risky”? “It's a combination of different data from different industries and various amounts of expertise,” says Laura. “For example, at Haven Life we've doctors on staff who evaluate specific diseases and how they relate to risk. Each individual situation is different. That can be as nuanced as, for any certain kind of cancer, exploring the size and grading of a tumor and also the probable advancement of that disease. When it comes to behavioral risk – factors like driving history and hobbies – addititionally there is data that correlates those types of things with mortality. The life insurance industry in general includes a tremendous amount of information correlating those inputs to mortality outcomes returning decades.”
However, while “on the majority of things there's pretty clear consensus on what's risky and what's not, insurers take slightly different perspectives at the margins,” says Laura. “Some carriers are extremely risk averse for several hobbies. It could are just one claim they saw [which made them that way]. By the same token, some carriers feel they've the data to support a looser stance on a specific risk. It sometimes might come down to having a specific insurance underwriter or physician at the company that really has got the expertise you need to evaluate a particular risk. There's also just different philosophies at different companies. Marijuana me is an example where, over time, different companies have moved at different speeds. Some carriers take a conservative approach and others have loosened as it might be legal in additional states.”
These “different perspectives in the margins” imply that if you're a life insurance outlier – risky behavior or job; difficult medical situation – it is best to shop around. Says Laura: “For somebody that has serious medical conditions there are specific insurance brokers that make their living by understanding the differences between different carriers and helping high risk applicants find the carrier that will view them most favorably.”
Even if you're not a high-risk applicant, we would always suggest you shop around for the best price and repair before selecting your lifetime insurance plan. Some extra time up front can pay off considerably when it's time for you to select your coverage.
It's vital that you be honest in the application process. The issuance of the policy or payment of benefits may rely on the truthfulness of answers you give in the application.