If you’re purchasing life insurance for the first time, the whole process can feel a bit overwhelming – or a lot overwhelming.
Which policy type do you choose? What is a fair premium? What kinds of information will you be asked to provide and how will your answers affect the outcome of your application? These are all important questions to consider. After all, these are the kinds of factors that the life insurance company will be taking into consideration while underwriting your policy.
Underwriting is completed by a group of licensed life insurance professionals termed “underwriters”. Underwriters are responsible for assessing your potential liability to your life insurance company based upon a variety of predictive factors, and then subsequently writing your policy and determining your premium according to the determinations that were the result of their extensive and comprehensive assessment.
As an applicant, you are asked a series of in depth questions, which may include:
- height and weight
- past and current medical history
- the general reason for which you are purchasing a life insurance policy
- your marital status
- whether or not you have kids (and how many)
- what you do for a living
- how much income you generate annually
- whether or not you smoke or use tobacco products
- your alcohol consumption habits
- and whether or not you have used or currently use recreational drugs.
- hobbies you engage in
- as well as whether or not you are a frequent traveler.
While many of these questions may seem irrelevant, they all contribute to the assessment of potential risk that your health and your lifestyle pose to the company. According to statistics, certain factors increase the likelihood of death, and thus increase the risk of financial loss to the company. In other words, if you engage in thrill hobbies like, let’s say, skydiving, the company is more likely to have to pay a death benefit to your family as opposed to an applicant who enjoys painting model trains in their spare time. Work in a coal mine? Well, your occupation is going to be viewed as a liability – and it may affect your monthly premiums.
Why do they need to know about your travel habits? Depending on where you travel to, certain countries, especially countries that are known for violence and rampant illness, present as potential risk of financial loss to the company.
The same goes for your health. If you’re overweight and smoke, you can expect to see a hike in your premium. Thankfully, if you have diabetes, type 1 or type 2, you can work with an independent insurance agent that can work with underwriters for specific companies to help create a policy that is affordable. Working with companies that understand diabetes and what proper diabetes management can do for the disease is beneficial in finding affordable options.
While underwriting may seem like a breach of privacy in some form, it’s all in the name of business. Just as you wouldn’t invest in a new business without first assessing the market and completing the research necessary for success and a promising return on investment, an insurance company must also determine how they can comfortably maintain coverage on an individual according to the factors that best predict their financial security.