Life Insurance Underwriting

Many people today have a small amount of lifeeach applicant poses, assess these risks, charge
insurance as a benefit of employment; however,the appropriate premium to cover the risks, and
it is seldom sufficient to provide for total familyinvest wisely so that sufficient moneys exist to
protection, college education, or business coveragepay all present and future claims. Different groups
in the event of premature death.of insured's with different life expectations must
To cover these financial needs people buybe distinct based on real differences in mortality
individually underwritten life insurance from theexpectation.
private market in different amounts and atLife expectancy varies by age, gender, medical
different times throughout their life. Peopleand family histories, avocation, and lifestyle.
seeking this protection are free to choose whenApplicants for life insurance have different medical
to buy, what to buy, and how much to pay forhistories and risk factors for future disease that
coverage. They can buy when they are youngaffect life expectancy. Each group of insurance
and healthy, or wait until middle age hoping theirunderwriters is charged a premium sufficient to
health will stay good, or they can buy at a highercover costs associated wt its expected rate of
premium if they develop a chronic illness.death. The primary task of an underwriter is to
Based on their financial portfolio and coverageassess life expectancy based on medical,
needs, they can choose products ranging from anoccupational a vocational factors significant to life
inexpensive term insurance product to high cashexpectancy.
value (whole life) product. The private lifeIt is vital that the insurer have a full
insurance system provides an important financialunderstanding, and particularly the same
safety net, but it is entirely voluntary andknowledge, as the applicant in order to assess
unsubsidized. An individual life insurance policy is, inaccurately that risk equitably.
effect, a commercial transaction in which theBefore offering coverage to an applicant, life
insurer agrees to pay a specified death benefit ininsurers attempt to identify factors that may
exchange for payment of a premium proportionalshorten the person's usual life expectancy at a
to the mortality risk assumed by the insurer.given age. If identifiable risks exist, the
The one characteristic common to all individual lifeunderwriter uses actuarial and medical information
insurance products is transfer of the financial lossto calculate life expectancy and determine an
caused by unexpected death to the life insuranceappropriate premium.
company. The real product is payment of theThere are many different types of life insurance
death benefit regardless of when that deathproducts and their particular features play
occurs during the lifetime of the product. Thedifferent roles in determining the price of each
death benefit for each individual far exceedsone. Because life expectancy is defined as the
annual and cumulative premiums plus earnings forage at which half the insured's will have died, it's a
several years, particularly for young applicants.moving target that increases with the age of the
To offer this financial protection, the companyindividual at the time of application.
must be able to identify and distinguish the risks