by Staff, AdvisorAnalyst.com
Life insurance underwriting has been around for a long time. It's been developed and changed over the centuries, always keeping up with emerging technologies and changing customer needs. But no matter how much technology changes and what people want, the truth remains: Life insurance is still very much about risk selection.
In 1798, the second President of the United States signed an act providing relief for sick and disabled seamen. This act was the first example of disability insurance in the United States. The newest form of disability insurance is living benefits. These coverages are relatively new to the marketplace, but they are based on older forms of disability insurance.
In 1885, the law was passed that required seafarers to put aside twenty cents from each day's pay to fund medical care for other sailors who fell sick or became disabled.
The maritime industry was so important for trade and commerce, the law created hospitals for sick seamen. These were perhaps the earliest examples of what we now consider medical insurance.
A critical illness policy is a relatively new type of life and living benefits insurance. It was designed by Dr. Marius Barnard, a South African doctor. He first introduced this type of policy in 1983, and it was called Dread Disease Insurance.
A simple premise: If you're diagnosed with a covered illness and survive for 30 days, your insurance company will pay you. Critical illness insurance is very popular in Canada. It provides a powerful tool that can change your life and save your life.
Different underwriters can affect your rates.
When you’re talking about life insurance and disability insurance, there are a few things to remember. Life insurance is a long-term financial planning tool, while disability insurance is a short-term financial planning tool. It’s important that you know the difference between the two, and that you can explain it to your clients.
Let’s start by discussing what insurers are looking for in your medical, financial, and lifestyle information. Essentially, their goal is to predict your longevity. They’re looking at your entire health history to calculate how long you’ll live.
The average Canadian lifespan is now 82 years for men and 84 years for women. In 1981, it was 75.5. This means that life insurance policies are cheaper than ever before, with premiums constantly decreasing. Younger Canadians in good health who have never smoked will be able to get a low-cost policy.
Technology is changing the way we buy life insurance. Smart applications are now helping us understand risk factors and find better coverage. Using artificial intelligence, algorithms, and high non-fluid limits, it's never been easier to buy life insurance.
Disability insurance is different.
It's all about whether you're able to work. If you are, then you're not disabled. If you're not, then you are. Disability insurance is crucial for anyone who can't work. However, disability insurance is complex and requires very specific underwriting attention.
Even if the condition is not serious and has no impact on life insurance underwriting, it can still be submitted. This is a new dynamic shift in the claims process. If you are insured, you may submit multiple claims over the course of your coverage.
Underwriters can offer more protection to clients with disabilities by using specific impairment exclusions, longer waiting periods, and limited benefit payments. These tools allow disability insurers to better protect clients.
How would you view a serious illness like depression?
Would you put a price on it? Would you write it off as a loss and move on? The severity of depression and the effects it has on a person’s life should be considered in the underwriting process. It can have a devastating impact on an individual's life.
The most tragic outcome for people with mental illness is suicide. Unfortunately, suicide is an event which can result in a life insurance claim. Underwriting for disability insurance is heavily biased toward being able to work. According to research, there are 12 billion days of work lost every year due to depression.
In Canada, 500,000 people miss work each week due to mental health problems. This means that the possibility of multiple claims and extended absences casts a wide shadow over disability insurance applications. With a history of depression or other mood-related disorder, there is a higher chance of disability insurance claims.
Critical illness insurance is a short-term plan that pays out upon diagnosis of an illness. Neither death nor disability are considerations. Rather, the plan only pays out if you are diagnosed with a critical illness and given a short period to live.
The price of insurance is based on the likelihood of a given disease. Heart attack is one example. Heart attack survivors can be back to work in just a few weeks or months and still be eligible for insurance benefits.
The end point of a controlled importation underwriting is a simple diagnosis. In CI underwriting, the insurance company focuses more on factors that influence risk, such as smoking, blood pressure, and lifestyle habits.
Genetic tests can reveal a lot about your health. If you take one, your insurer can’t use the results against you. The Genetic Non-Discrimination Act (GNA) made that illegal, and it prevents insurers from finding out about your family history of illnesses. This law applies to other kinds of health insurance, too.
Putting it all together: How to Submit life and living benefits cases
When considering life and living benefits, there is no one-size-fits-all approach. Good underwriters will examine your current prescription list, time lost from work, and family history to get a clear picture of your health.
One way to reduce the amount of underwriting evidence required for your auto or home insurance coverage is to check with different carriers. You may find that certain carriers require less underwriting evidence than others.
Additional insurance requirements can be submitted after initial coverage. One way to find out how your disability and critical illness products might be evaluated is simply asking the underwriter who approved your life insurance policy.
The key is being aware of differing requirements and taking a best-practices approach.
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