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The Business of Insurance Underwriting

The Business of Insurance Underwriting

The Business of Insurance Underwriting

There are many misconceptions out therein the big bad world on howhealth insurance works. The most crucial is; how you qualify for a policy, specifically, Life, Critical Illness or Disability.

When you apply for insurance, any of the above, the first thing the insurance company wants to know is; are you healthy? If you are not healthy, if there are underlying health issues, the insurance company is not going to insure you. It would be like insuring a house for fire where the house has faulty wiring or a bunch of smouldering rags in the basement.

The above is the reason the insurance company wants to have a paramedical carried out on you. Basically, a mini annual checkup with a urine test and depending upon age and the amount of insurance you are applying for, a blood test and even an EKG. An older age and a large amount of insurance might call for a stress EKG.

If you watch TV at all, you will see somecommercials by a few life insurance companies offering life insurance with no medical checks, no agent will call, you don't have to answer any medical questions and you are guaranteed to be approved. How can that be?Is the insurance company being overly generous? Not on your Nelly. Insurance companies measure the risk and provide products they can make money on. So how can they make money on life insurance for sick people? Well, guess what. You take out one of these policies, maximum is $100,000 (forget about covering your $500,000 mortgage with one of these) and you die of cancer a few weeks later, your beneficiary will not collect. At best, your estate will be refunded the premiums paid, without any interest of course. Why is this?

Because insurance companies have a procedure called underwriting. What this means is, they assess the risk and if favourable to the insurance company, will issue a policy. But, you have to read the fine print. I mean really, what insurance company in their right mind is going to insure a person with terminal cancer? The process of underwriting can only be carried out two ways. One is at time of application; the other is at time of claim. What is your choice? Would you rather qualify for your policy at the time of application and have peace of mind, knowing that when you die, all your executor has to do is provide the claim form and the death certificate and the policy pays out. Or? Have your policy underwritten at time of claim, having your executor or beneficiary prove to the insurance company that you were healthy when you were issued the policy?Can you imagine the hassle that would entail? Not only is your family upset about your demise, but they have to deal with an insurance company who doesn't care about your loss, they only care about the facts. And the facts are; was he/she healthy when the policy was issued?

So the issue should be; always make sure any insurance policy you take out is fully underwritten at time of application so when it's time to make your claim, there is a minimum of hassle. And grief.

Please see my blog: http://thebusinessofinsurance.blogspot.com/
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The Business of Insurance Underwriting