Life Insurance Underwriting and Policy Issue
The underwriting process
Underwriting classifies risk to set premium. Steps: application, medical and financial information, underwriting classification, policy issue, and delivery. The agent's report and attending physician statement may be used. MIB (Medical Information Bureau) reports are coded and require authorization.
Risk classification
Standard, preferred, substandard, and declined. Substandard risks may be issued with a rated premium, exclusion rider, or modified coverage. Field underwriting by the agent gathers accurate information and avoids misrepresentation.
Policy issue and delivery
The policy takes effect when the initial premium is paid and the policy is delivered, unless a conditional receipt or binding receipt applies. A conditional receipt provides coverage if the proposed insured is insurable under the insurer's rules. Statement of good health may be required at delivery.
Traps
- Confusing conditional and binding receipts.
- Assuming coverage begins at application - it depends on premium and receipt type.
- Forgetting that misrepresentation on the application can affect a claim within the contestability period.
Rule of thumb
Coverage begins when premium is paid AND the policy is delivered (or earlier under a conditional receipt if insurability is met).