Do you want to find out how does underwriting differ between group life and individual life insurance? Unlike individual life insurance underwriting, group life individual life insurance is so simpler. It does not require the underwriter to go through the individual’s specific information within the insured group.
Life insurance is something a person must have, to provide financial aid to the people that will be left behind when death knocks at the door. It is a huge help to the family members and loved ones.
This is because they will be the ones held responsible for paying the loans or mortgage you haven’t fully paid off yet. It is beneficial when your estate isn’t enough to cover for these. In this article, you will learn more about life insurance and what it is. We will discuss the process of underwriting in life insurance and the differences between group and individual life insurance.
Keep reading until the end to know why people consider buying life insurance and how insurance underwriters determine the price of your life insurance. It will help you decide whether group or individual life insurance is the one for you.
What Is Life Insurance?
Life insurance is just like any other insurance policy or agreement but with a specific purpose in mind. It ensures that the beneficiaries the insured has named will receive an amount of money after they pass away.
This tax-free sum of money is something the insurer will give the beneficiaries after your passing in return for the premiums you paid while you were still alive. It is a huge help to those who are left behind after your passing.
Some of the examples of how this could be used would be, to pay for costs of burial and such, to pay for debt left behind, to be used as a replacement for the income you have provided, or as an inheritance.
It might sound simple, but there is a quite lengthy process that you must undergo before you could start paying the premium for the life insurance you always wanted. This step is called insurance underwriting. During this step, an insurance underwriter will try to analyze your personal information, especially those with your health and factors that could affect the length of your life expectancy.
This gives an accurate estimation of how long you would live, which is what the price of your premium would be based on. To learn more about insurance underwriting and how does underwriting differ between group life and individual life insurance, keep reading.
Life Insurance Underwriting Process
Life insurance underwriters need to know how long you might live to give a fair and agreeable price for the premium for both parties. Usually, the shorter the life expectancy, the higher the price one has to pay for the premium.
This is because the insurance providers would be at a huge disadvantage if they ask everyone to pay the same price for their life insurance premiums. They do this for risk management and see who is at a bigger advantage between the insurer and the insured.
An example would be if a person were given a short estimated life expectancy, the amount of money the insurers could receive from the premium payments will be significantly less than the amount they will be providing for the beneficiaries.
Now, let us talk about what information underwriters need and some of the steps to be taken for the estimation to be as accurate as possible. These will be listed and elaborated on below.
#1. Insurance application
This is the first step. The underwriter will gather the personal information that is needed. It will become the very foundation of your policy. Sometimes a short interview is done over the phone, and the necessary question will be asked. This includes your job, your favorite pastime, and your habits.
#2. Medical history
During this step, they will check your medical history. This is to ensure your past medications and health conditions you have faced before or are still facing right in the present.
#3. Medical examination
You will be asked to take a medical examination to back up your claims and find out about the current state your body is in. This is to make sure if you have any health problems or potential health risks.
#4. Motor vehicle report
They will use this to see if you have any past traffic violations and such. In addition, it would give an idea of the behavior that you have when on the road. For example, having a large number of speeding tickets will significantly increase your likelihood of getting in a car accident.
Group Life Insurance Vs. Individual Life Insurance
So now that we got all of that other stuff out of the way, we can focus on the differences of underwriting between group life insurance and individual life insurance. Group life insurance usually comes as benefits provided by employers to their employees or a certain organization to its members. In contrast, individual life insurance covers only one person and is paid for by the insured.
You do not have to pay a large sum for group life insurance. Sometimes you don’t even have to pay anything. This is because it is a low-risk and low-reward policy. It is the reason why the underwriting process is not too complicated.
Most of the time, group life insurances are not paid for by the individual being insured. Instead, this is paid by the sponsor of the group of individuals insured. Because many people are insured simultaneously, the cost is usually meager, and this includes the amount to be provided as well.
On the other hand, individual life insurance is costly but also offers a high amount in return. The process of underwriting is more complicated and takes longer. This is because the agreement will be customized depending on the individual.
Final Words
At the end of this article, I hope you have learned how does underwriting differ between group life and individual life insurance. Thank you for reading up to this point of the article. Your time and effort are very much appreciated.