What is Underwriting in Term Insurance Policy?

The underwriting process protects the customer against any unwarranted excess premium charges. There are two kinds of underwriting processes involved:-

Medical Underwriting

This underwriting process helps gauge the customers’ health conditions by taking into consideration details including:

• Age at the time of filling the proposal form;
• Gender of the customer;
• Smoker or Non-smoker;
• Drinking habits;
• Personal medical history, i.e., illnesses that the customers may have suffered in the past or any recent surgery;
• Medical history of a family, i.e., if the family is suffering from any grievous physical or mental health conditions;
• Involved in risky activities or if the nature of the job involves taking risks;
• Participation in adventurous activities.

Each of the considerations stated above is assigned a specific rating or score. The customer is required to undergo a medical test  Based on the results of the medical examination report and the scores assigned to various health parameters, the insurer decides whether to accept the proposal or not.

Financial Underwriting

A term insurance plan makes up for the loss of income in the event of a sudden death of the policyholder. To understand what the customer’s life is worth, it becomes important for the insurer to know the current income and gauge the earning capacity of the individual. The insurer accordingly arrives at the extent of life cover that the customer can avail to financially secure his or her nominee. Term insurance is not an investment product, which means that term insurance does not serve to benefit anyone from the death of a loved one, but rather replaces the earnings lost due to death.

The financial underwriting process ensures that the nominee(s) or dependent(s) do not avail financially more on the death of the policyholder than they would have during the policyholder’s survival.