Life Insurance Applications Process and Underwriting

Life Insurance Underwriting

In order to obtain a life insurance policy, an application must be submitted to one or more companies so that they can assess whether they will accept the person to be insured as an acceptable risk. The process of gathering and reviewing their information is known as underwriting.

The Application:

The life insurance application requires information be submitted regarding the proposed insured's health and lifestyle.

The lifestyle issues will include:

  • driving record,
  • smoking and/or alcohol consumption habits,
  • the use of any illicit drugs,
  • participation in any potentially hazardous sports, such as scuba diving, sky diving, back country skiing, etc.
  • A review of foreign travel within the last 12 months, as well as the planned travel within the next 12 months, to places other than Canada and USA . Travelling to countries that have been issued a travel advisory warning by Canada's Department of Foreign Affairs may result in underwriting problems.

The financial and medical information to be submitted includes

  • Medical history of the insured's parents and siblings.
  • Names of all doctors and current medications
  • Medical information of the proposed insured
  • Financial information to justify the proposed amount of life insurance

Life Insurance medical:

The scope of the insurance medical exam required will depend on the amount of coverage applied for and the age of the proposed insured. Details of the medical can be provided by the insurance advisor as well as how best to prepare for the medical.

Inspection Report:

If the proposed life insurance is for an amount in excess of $10mm, a telephone interview by a third-party company, hired by the insurance carrier, will be required. This "inspection report" will confirm the information submitted in the application.

For larger face amounts (currently in excess of $10mm), reinsurance will be involved. The insurance company receiving the application, and ultimately issuing the policy, is known as the “direct carrier”. They, in turn, will utilize the reinsurance carriers (of which there are 3 main providers in Canada) to provide the necessary coverage. While the direct carriers may utilize reinsurance to spread the risk, such transactions remain behind the scenes. The contractual relationship, in regard to the actual insurance policy, is between the proposed insured and the direct carrier.

In circumstances involving large estates where large amounts of insurance is to be obtained, the underwriting of such a policy needs to be handled properly. Failure to do so can result in rated or declined polices. In addition, applying to multiple insurance companies can present a problem since the companies are uncertain as to what amount of coverage will be ultimately placed. Therefore, it is advisable to have an insurance broker/agent who has experience and knowledge with underwriting and handling large “jumbo cases”.