Underwriting is a key part of the Income Protection application process. It involves assessing the applicant’s earnings, occupation, medical history and hobbies to ensure they are paying the right premium for their insurance.
In this article, we will explain what underwriting is, answering the question ‘what does underwriting mean?’, and explore the Income Protection insurance underwriting process so that you have a full understanding of the procedure.
What is underwriting?
Underwriting in income protection insurance is the process of assessing the risk of providing cover to the purchaser. The underwriting process evaluates the applicant’s occupation, health, lifestyle and financial situation to decide whether or not the insurer can provide them coverage, and the terms, conditions and premium costs of that coverage.
What are the assessment conditions?
The insurance underwriting process takes into account the different information provided when the applicant purchases the product to decide whether or not you can be insured.
This can be based on a combination of different criteria. Let’s explore the underwriting criteria that could be assessed when determining the risk factor of your application:
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Your age: The older you are, the more at risk you are of being unable to work due to illness or injury. With this in mind, the cost of purchasing income protection insurance increases as you age.
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Your health and medical history: Insurers assess your medical and family history to identify any pre-existing medical conditions or potential future health concerns that could lead to a claim.
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Your lifestyle choices: Insurers can take various lifestyle choices into account, such as your alcohol consumption, whether or not you smoke, and where you live and travel to, as each of these conditions can impact your risk of becoming too unwell or injured to be able to work.
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Your occupation: The nature of your job will be evaluated to understand the level of risk involved. Those with higher risk jobs, such as people in construction and professional athletes, carry more risk of becoming injured at work. This increased risk can lead to higher premiums or exclusions.
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Your financial situation: An insurer can assess your income to ensure that the level of coverage is appropriate. This prevents over-insuring - where the payout might exceed your income.
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Your hobbies: When evaluating your income protection insurance application, insurers may want to know how you spend your free time. Risky hobbies, such as extreme sports can increase the likelihood of becoming injured and unable to work, which can increase the possibility of a claim.
By thoroughly assessing these factors, underwriting helps insurers maintain a balance between offering protection to customers and managing their own financial risks.
Why is underwriting important in income protection insurance?
The underwriting process is a crucial part of the income protection insurance service. It ensures that the pricing is fair for both the customer and the insurer and makes sure that the income protection coverage is tailored to the individual requirements of the applicant.
The personalised approach within an underwriting process helps to strike a balance between affordability and the level of cover, allowing individuals to get the protection they need. By taking into account all relevant factors, it helps create a fair and tailored policy that meets both the customer's needs and the insurer’s underwriting criteria.
What happens during the underwriting process?
The underwriting process consists of a comprehensive review of all necessary criteria. Due to this, there are a number of different steps involved in underwriting for income protection insurance:
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Application review: The process begins with an initial review of the applicant’s submitted information.
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Medical disclosure: Medical disclosures are reviewed and additional checks such reviewing GP records are conducted as necessary.
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Risk assessment: A thorough risk assessment is conducted, taking into account all the information obtained, to decide whether or not cover can be offered.
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Final decision: If, based on the earlier steps, the insurer has decided they can insure you, they will provide policy terms, any exclusions and premiums, and once accepted the policy will begin. If you are denied insurance, the insurer will provide you with an explanation of why so that you can understand the reasoning.
The typical timeframe for underwriting in income protection insurance can vary depending on several factors, but could take anywhere from 2 to 6 weeks. This timeframe may be shorter or longer depending on the complexity of the applicant's situation.
For applicants with straightforward health, occupation, and lifestyle histories the underwriting process can be relatively quick.
Common outcomes of the underwriting process
The underwriting process can lead to several possible outcomes, each reflecting the insurer's evaluation of the risk posed by the applicant. These outcomes will determine the terms, cover and premiums of the policy.
One outcome of the underwriting process is a standard acceptance. In this scenario, the insurer accepts the application as is, with no changes to the standard premiums or cover. This typically occurs when the applicant works in a low risk occupation and there are no significant health issues or high-risk factors associated with their lifestyle.
If the insurer believes that the applicant presents a higher risk, they may offer a rated policy meaning the premium may be higher to reflect the increased risk. For example, applicants with pre-existing health conditions, dangerous occupations, or risky lifestyle choices may face higher premiums to ensure the insurer is compensated for the added risk.
In some cases, the insurer may agree to provide coverage but with certain exclusions. These exclusions specify conditions or activities that are not covered by the policy. For example, an insurer may exclude coverage for specific health conditions that were disclosed during underwriting.
In some circumstances, the applicant’s risk is considered too high to insure so the application is declined altogether. If declined, the applicant can seek alternative options, such as a policy with more limited coverage or a specialist insurer.
How to navigate the underwriting process smoothly
There are a few things that applicants can do in order to ensure a smooth underwriting process and avoid unnecessary delays or complications. Let’s explore some tips that you can follow to increase the speed in which the decision is made, and your likelihood of achieving a positive outcome:
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Be transparent in your application: It’s essential to provide truthful information about your health, lifestyle, and occupation when applying for income protection insurance. Withholding or providing inaccurate details could lead to delays, higher premiums, or even a declined application or declined claim if discovered later.
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Provide complete and accurate information: Make sure to fill out the application fully and accurately, including any requested medical history or lifestyle details that could affect the underwriting process. The more complete your application, the quicker the insurer can assess your risk and make a decision.
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Respond quickly to any requests from the insurer: If the insurer requests additional information, respond as quickly as possible. Delays in providing necessary information can slow down the underwriting process.
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Understand the terms and ask for clarification if needed: Don’t hesitate to ask your chosen insurer about any terms, conditions, or requirements that you don’t understand. Being clear on the details of your policy ensures that you know exactly what you are signing up for and can help avoid misunderstandings later.
How Wiltshire Friendly can help
Wiltshire Friendly is a specialist income protection provider. We provide income replacement cover to individuals, employers and amateur, semi-professional and professional sports players who have lost their income due to illness or injury preventing them from working.
We are proud of our personalised, customer-focused underwriting service and work hard to ensure that all of our customers receive an insurance product that works for their individual circumstances.
To find out more please contact us today.