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Is a physical exam needed?
On larger policies, most life insurers require the applicant to undergo a physical examination by a doctor, nurse or a para-medical. At that time, samples of the applicant's blood and urine typically are taken. The insurer will typically also request the applicant's medical records from his or her physicians, and have them reviewed by the underwriters. The insure usually will also check the applicant's health history with the Medical Information Bureau, the driving record, credit records and do such other investigations that seem warranted. Of course, the higher the amount of insurance being sought, the more intense the investigation. Remember that the insurance company would take in only a small premium, but have to pay out a large amount if the insured dies -- for a person age 30 it may be possible to buy a $1 million Term Policy for a premium of only $1,000 for the year; if the insured dies the company would be out $999,000 plus whatever it paid to sell and underwrite the policy!
After the application and medical information is completely gathered, the underwriters make their underwriting decisions.
First -- if the policy has underwriting requirements -- they decide whether the applicant qualifies for insurance at all. (For example if someone had cancer within the past year, or has AIDS, s/he would likely be unable to buy underwritten life insurance at any price.)
Second, they classify the risk -- which impacts the price of the coverage. Most receive either a "preferred" classification (intended for those who are above average risks) or a "standard" classification. If a person has a history or characteristics that suggest s/he is riskier than average (perhaps because s/he is 50 pounds heavier than the average for his or her age and height, or has high cholesterol, or had by-pass surgery 5 years ago) the policy would be "rated", and offered at a higher price based on that rating, given the applicant's age.
Each insurer may evaluate an applicant differently, so that a person Company A would regard as "Preferred" would be "Standard" at Company B, and Rated at Company C. Also, some companies rate up to 70% of all applicants as "Preferred" (to make applicants and agent feel good about themselves and the company) but charge more than other companies would charge for "Standard". |
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