What factors are considered in individual life insurance underwriting?

Life insurance companies each have their own extensive policy and procedure manuals they are supposed to follow in determining whether or not to issue an Individual Life insurance policy, and in pricing that policy. The insurer’s underwriters typically use a combination of factors that experience shows equates with the risk of death (and premature death).

They include the applicant’s answers to a series of questions such as:

(1) age,

(2) sex (except in several states that require “uni-sex” rates, even though actuarial data shows women live longer than men),

(3) height and weight,

(4) health history (and often family health history — parents and siblings),

(5) the purpose of the insurance (such as for estate planning, or business or for family protection),

(6) marital status and number of children,

(7) the amount of insurance the applicant already has, and any additional insurance s/he proposes to buy (as people with far more life insurance than they need tend to be poor insurance risks),

(8) occupation (some are hazardous, and increase the risk of death),

(9) income (to help determine suitability),

(10) smoking or tobacco use (this is an important factor, as smokers have shorter lives),

(11) alcohol (excessive drinking seriously hurts life expectancy),

(12) certain hobbies (such as race car driving, hang-gliding, piloting non-commercial aircraft), and

(13) foreign travel (certain foreign travel is risky).

Case Studies: Factors in Individual Life Insurance Underwriting

Case Study 1: Health History and Family Health

John, a 35-year-old applicant, has a clean health history with no pre-existing conditions. However, his father passed away from heart disease at an early age. The life insurance company considers this family health history when underwriting John’s policy and may adjust the premium accordingly.

Case Study 2: Smoking and Tobacco Use

Sarah, a 40-year-old applicant, is a smoker. Smoking is a significant risk factor for various health conditions and reduces life expectancy. As a result, the life insurance company charges Sarah a higher premium due to the increased mortality risk associated with tobacco use.

Case Study 3: Occupation and Hazardous Activities

Michael, a 45-year-old applicant, works as a commercial pilot. Certain occupations, such as piloting non-commercial aircraft, are considered hazardous and increase the risk of death. The life insurance company takes this occupational risk into account during underwriting and may adjust the policy terms accordingly.

Case Study 4: Foreign Travel

Lisa, a 30-year-old applicant, frequently travels to countries with high-security risks. Certain foreign travel destinations can pose increased risks to an individual’s safety and well-being. The life insurance company assesses the potential impact of Lisa’s travel on her mortality risk and adjusts the policy terms accordingly.