Registered reps who have shunned life insurance for their clients due to complex, time-consuming underwriting can breathe a sigh of relief. Insurers now offer “simplified issue underwriting,” a typically automated and more efficient medical underwriting process.
A 2009 survey by LIMRA of 29 insurance companies reveals that half of all types of simplified issue products can be underwritten in five days. And over 90 percent are completed within ten days. LIMRA defines the underwriting time as the “time from receipt of application to an offer of insurance being made/or the application being rejected.” By contrast, about half of the applications for a fully underwritten policy take at least 20 days to get an answer.
Term insurance is the most frequently sold product with simplified underwriting, says the LIMRA report. Whole life is a close second. Overall the 29 insurers in the survey report sales of over one million individual simplified issue policies. These policies resulted in $600 million in annual premium and $35 billion in face amount coverage.
The survey also reports that the target market for simplified issue policies include people that need coverage for funeral expenses, young adults, mortgage insurance needs, parents or grandparents buying insurance for minors and worksite markets.
The catalyst for faster underwriting involves high-speed computerized databases and new medical test procedures. Insurance underwriters have fewer reasons to obtain information from an applicant’s doctors, thanks to databases that tap information on prescription drugs. Underwriters also check criminal and bankruptcy records as well as records with the division of motor vehicles and the medical information bureau before approving coverage. Numerous motor vehicle violations, a bankruptcy or a criminal record could lead to the denial of coverage.
Today, insurers can also conduct a cognitive impairment test over the telephone and ask questions that previously had been asked by insurance agents. Medical exams no longer require the time-consuming visit to an insurance company’s designated medical doctor. Instead, exams are conducted by paramedics, who come to a client’s home or office.
A paramedic, paid by the insurance company, calls a client to set up an appointment. The paramedic carries his or her own supplies, including centrifuges for blood sampling. The paramedic takes down a person’s medical history, height and weight measurements, blood pressure reading and samples of blood and urine. Based on a person’s age and policy amount, other tests also may be conducted.
Christopher Graham, chief underwriter for the Hartford Life Insurance Companies, Simsbury, CT, says the simplified issue process helps both the broker and the client. “The producer doesn't have to get involved,” he says. “All the broker needs to do is fill out a ticket with the name, address, telephone number and the face amount of the policy. We take over from there.”
The reduction in exams by medical doctors, minimal use of treadmill stress tests, elimination of chest x-rays and the replacement of electro-cardiograms with blood tests, has dramatically stepped up the process.
The amount of death benefit coverage someone can get using simplified underwriting varies by insurance company. Each company has specific age and face amount limitations. But typically, the elimination of a treadmill test is common for persons up to age 50 on face amounts of up to $10 million—unless the proposed insured is a smoker. In that case, the coverage amount might drop to $5 million, Graham says.
Chest x-rays might be eliminated at all ages—except for specific medical reasons—and medical doctor examinations might be eliminated for those up to age 70 for amounts under $10 million. They are sometimes requested for face amounts above $500,000 for those who are over 70 years old, however.
After all is said and done the insurance company’s underwriter determines whether a person qualifies for life insurance coverage, and the cost. Those in excellent health are classified as a “preferred risk,” and pay less than those who, for example, smoke or have high cholesterol, who would fall into the category of “standard risk.”
Lance Wallach, Plainview, NY-based insurance agent, says he’s noticed a big difference since many insurers implemented simplified issue programs. The simplified process, he says, is particularly helpful to registered reps who write smaller insurance tickets because the insurance company does most of the underwriting work. But he suggests that reps use an insurance company-provided check list to prepare clients.
“We do everything ahead of time to prepare a client so they are not shocked by the paramedic or underwriter telephone questions,” he says. “We script them and can get policies issued sometimes in less than a couple of weeks.”
Reps looking for a fast turnaround can get clients non-medically underwritten term life insurance or whole life insurance, typically up to as much as $400,000. Clients, who have no major health problems and are reluctant to get a medical exam, can apply directly online, and get approval for quick issue coverage that ranges from 15 minutes to 3 days for approval by insurers such as Mutual of Omaha and RBC Insurance.
But there is no free lunch with a non-medically underwritten policy. The insurance company reviews medical records and verifies the accuracy of the information on the application form. During the first two years, the life insurance company also reserves the right to cancel a client’s insurance coverage if the enrollment form contains a material misrepresentation about medical history. Medically underwriten coverage is also a better value. “Clients may qualify for lower premiums and more coverage if the policy is medically underwritten,” says Wallach.