What Is Underwriting in Insurance?
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What is underwriting in life insurance?
Underwriting is a process of data-based risk assessment that insurance companies use to set a person’s unique insurance premium. Risk management is a fundamental part of how life insurance works.
Medical underwriting is a specific part of the underwriting process that includes a review of your health risks and possibly a medical exam.
Here’s how the insurance underwriting process works:
- Step 1: You submit personal data to the company like age, sex, health, and lifestyle.
- Step 2: The insurer looks at datasets related to each factor to understand your specific risk.
- Step 3: The insurer estimates how likely it is that you’ll make a claim and sets a fair price based on that risk (or declines),
Underwriting is how a life insurance company finds out about your risk factors and assesses them. Healthy and low-risk applicants pay less for coverage than higher-risk applicants.
There are four types of underwriting in life insurance — full and accelerated are the best fit for most Canadians.
Each company has its own formulas and underwriting guidelines within the insurance industry. This means that you might receive different quotes for term life insurance at different companies.
What does an insurance underwriter do?
An insurance underwriter has two main tasks:
- Evaluate an applicant’s risk
- Apply the insurer’s rules
In simple cases, underwriting is automated through algorithms that apply the insurer’s rules. In complex cases with ambiguity, human underwriters review applicants manually.
When evaluating, an underwriter uses third-party data sources and actuary tables to understand the mortality risks associated with each variable (age, sex, health class, etc). Each piece of relevant information has a price associated with the risk, and the underwriter brings it all together into one final number.
When applying insurer rules, an underwriter may need to apply their judgement if information is unclear or the level of risk is unique. For instance, software might have a rule that automatically rejects people with uncontrolled diabetes who also smoke. But what about people who have “mild” or “moderate” diabetes that is “somewhat controlled”? What if the applicant has received a new treatment not reflected in the pricing tables?
Underwriting rate tables are:
Underwriting protects everyone. It ensures fairness for policyholders, so the premium is based on real risk assessment. It also protects the company from unsustainable risk and helps keep the insurance pool full over time.
Our take: What type of underwriting should you choose?
Full, accelerated underwriting usually gets you the most coverage at the lowest cost. If you don’t get approved, no big deal — you can move onto a higher-cost alternative.
“Apply for a fully underwritten term policy first. Then try simplified issue life insurance. If these options don't work, look into guaranteed issue life insurance as a Plan B.” — Erik Heidebrecht, Licensed Life Insurance Advisor
Erik Heidebrecht is the customer service manager and licensed advisor at PolicyMe. Erik has a Bachelor of Business Administration from the University of Wilfrid Laurier University with a minor in Financial Mathematics. Erik has broad exposure to the personal finance world after working at Fidelity Investments Canada as well being an advisor with Sunlife Financial, one of Canada's largest individual insurance providers. Erik is now focused on taking that experience to improve the customer journey and provide the best advice to Canadians looking for life insurance.
Erik Heidebrecht is the customer service manager and licensed advisor at PolicyMe. Erik has a Bachelor of Business Administration from the University of Wilfrid Laurier University with a minor in Financial Mathematics. Erik has broad exposure to the personal finance world after working at Fidelity Investments Canada as well being an advisor with Sunlife Financial, one of Canada's largest individual insurance providers. Erik is now focused on taking that experience to improve the customer journey and provide the best advice to Canadians looking for life insurance.
How long does underwriting take?
Underwriting for a life insurance policy usually takes a few days. But timelines can differ a lot from provider to provider; it could take minutes or weeks depending on the underwriting process and the applicant’s risk profile.
- Accelerated and simplified underwriting: Minutes to days
- Fully underwritten with medical review: 2-8 weeks on average
- Guaranteed issue policies: Minutes
How PolicyMe’s accelerated underwriting can speed up your approval
PolicyMe uses accelerated underwriting to approve applicants and cut weeks off the review process, helping you get life insurance answers fast at no extra cost.
Digital data checks work fast. With accelerated underwriting, you get the same fair price without the wait — and PolicyMe is the only insurance company to offer this perk.
How underwriting works in insurance (step-by-step)
Underwriting in the insurance world starts with a person’s application and ends with a decision about their approval and rate.
Step 1: Application information
When you apply for a policy, you will submit key information about yourself to help the underwriters accurately understand your unique risk factors:
- Age
- Assigned sex
- Lifestyle (smoking, occupation, hobbies)
- Health disclosures (medications, history)
You’ll also request a specific type of coverage and term length, if you are choosing term over permanent coverage. Policy information helps the insurer set your rates, too.
Step 2: Data checks and records
Next, the insurer may review third-party data to verify your information such as:
- MIB records (confidential, coded alerts about serious medical condition)
- Medical records (doctor’s notes, x-rays, lab results)
- Prescription history
- Previous insurance applications
Some of these data sources require specific permission or may not be relevant if you’re applying for a simplified or guaranteed policy.
Step 3: Medical requirements (if needed)
In addition to a health questionnaire, you may be asked for:
- Medical exams
- Paramedical visits
- APS (Attending Physician’s Statement)
Age is one factor in determining if you need to complete this step.
If you are under 40 years old, it’s unlikely you will be asked to submit to an exam (barring preexisting health concerns). If you are between 40-50 years old, it’s possible you will be asked for additional medical information. It depends on your desired coverage and health. If you are over 50 years of age, it’s more likely you will be asked to submit more medical information — especially for higher coverage amounts.
Step 4: Underwriting decision
Finally, the underwriters (human and algorithm) will complete an assessment of your risk and issue their final decision.
A final underwriting decision for life insurance might be:
- Approved at standard rates
- Approved with a rating (an additional percentage on top of the standard rate)
- Declined
- Postponed (no decision for 6-12 months to see if your condition improves)
If you don’t like the result of the underwriting decision, you can either apply at another company, apply for a simplified or guaranteed policy, or try to improve your health and re-apply in the future.
Types of underwriting in life insurance
The four types of underwriting include full, accelerated, simplified, and guaranteed. These differ in cost, approval process, and coverage caps with accelerated underwriting offering the best balance of affordability, ease, and coverage.
Fully underwritten (FU)
A fully underwritten policy includes a detailed review of your health data, lifestyle information, and more. The approval process is lengthier, but you’ll get a fair price.
FU policies are the best place for most Canadians to start when looking for life insurance.
If you are young and healthy, a fully underwritten life insurance policy is likely to be the cheapest and most robust option for you and your family.
Accelerated underwriting
Accelerated underwriting is fully underwritten but may skip medical exams. The review is still thorough, but data and algorithms help speed up the process.
Accelerated, fully underwritten like PolicyMe’s is generally the fastest, most affordable way to get life insurance in Canada.
Note: Accelerated is not the same as simplified.
- Accelerated policies: Standard health information, approvals are fast, coverage caps remain high, premiums are affordable
- Simplified policies: Fewer health questions, approvals are fast, coverage caps are lower, premiums are higher
Simplified issue
Simplified underwriting is simple: fewer health questions and no medical exams.
Simplified issue life insurance policies are best for people who cannot qualify for fully underwritten policies due to pre-existing health conditions.
Approval is more likely, but you can expect higher premiums and lower coverage limits because the insurer needs to balance the risk of insuring you without a full health review.
Guaranteed issue
Guaranteed issue policies use very basic underwriting steps to assess you and set a price. There are no medical questions whatsoever. Approval is guaranteed, but premiums are very high and coverage caps are the lowest on the market.
Guaranteed issue life insurance should be considered a last resort. It’s best for high-risk people who have serious health issues and need help covering their final expenses.
Does underwriting always require a medical exam?
No, underwriting does not always require a medical exam. Many applicants are approved with no exam, especially younger and healthier people
In traditional insurance applications, age tends to trigger a need for medical exams. Canadians between 40 and 50 years old sometimes need to undergo a paramedical exam as part of their underwriting process. Exam likelihood is even higher for Canadians over 50.
With accelerated underwriting, barriers are removed for more applicants in Canada thanks to automation. Age is less likely to trigger a medical exam especially for applicants under 50 who have no major health conditions and who want low to mid-range coverage amounts.
What happens if you’re declined or rated?
You still have options if you are declined or rated as a result of insurance underwriting — the simplest one is to simply apply elsewhere.
- Apply to another company: Underwriting processes vary between companies, so a decline from one insurer doesn’t mean a decline everywhere.
- Adjust your policy request: Try requesting a different term length or coverage amount.
- Apply for simplified or guaranteed issue life insurance: If health issues are preventing you from getting coverage, look for an application that asks zero health questions (just expect a higher premium).
An advisor-led reassessment can help you understand your options and reapply strategically in a free, low-pressure environment.
FAQ: Underwriting in insurance
Bonnie Stinson is an insurance writer and researcher in Toronto with a decade of experience producing helpful, accurate content for Canadians. They have published resources for some of Canada's most innovative and consumer-trusted companies in the health, legal, and fintech sectors.
Bonnie Stinson is an insurance writer and researcher in Toronto with a decade of experience producing helpful, accurate content for Canadians. They have published resources for some of Canada's most innovative and consumer-trusted companies in the health, legal, and fintech sectors.