Friday, October 23, 2015

5 Types of Insurance Underwriting in the Workplace

When I work with employer groups, one of the things that decision makers often suggest is that if employees want life insurance that they can just go down the street and get it on their own. The problem is that getting life insurance is not like going to a store and buying a television. Anyone with the money can buy a TV, but money alone won't get you life insurance. You have to be approved. That approval process is called underwriting.

The problem with the underwriting process is that not everyone can be approved. Individuals with a history of critical illnesses such as cancer, diabetes, and heart problems or even with less serious conditions like high blood pressure can be turned down or charged an extremely high premium if they want the coverage. Often it's more than they want to pay.

This means that many people can't get the life insurance coverage they want and need on their own.

In this article, I wanted to go over the types of underwriting and how each one works so you can familiarize yourself with what underwriting is all about.

  1. Full underwriting Full underwriting is usually a complete medical questionnaire along with a medical exam. This is the kind of offer your employees can typically get "on their own". Again, this kind of underwriting is what all employees have available to them through any insurance agent and if they have any medical problems, they might be out of luck.
  2. Simplified Issue Simplified issue means that in order to qualify for coverage, the person would have to answer a medical questionnaire but not undergo a medical exam.
  3. Conditional Guaranteed Issue Conditional guaranteed issue means the underwriting offer is conditional to the answers to a small number of medical questions.
  4. Contingent Guaranteed Issue Contingent guaranteed issue means that an underwriting offer is contingent on the answers to a small number of medical questions PLUS another action, like also buying a policy on a family member. An example might be that a spouse can get coverage but only if they haven't been hospitalized PLUS the employee has to buy a policy as well.
  5. Guaranteed Issue Guaranteed issue means there are no medical questions. This is ideal for a person with a history of medical problems. The reason? They don't have to disclose them and they are guaranteed a policy.

My guess is that you can probably think of employees that have medical problems. After all, there's a reason that health insurance premiums are so high. And, those employees are the ones who NEED and who would benefit the most from guaranteed issue.

An employer group is at an advantage over an individual because it can use the group's "buying power" to negotiate a guaranteed issue life insurance offer for their employees. This would allow an individual who wouldn't qualify on their own for insurance an opportunity to get it though their employer.

And for many employees, this is a true benefit they can't get anywhere else unless you as the employer help them get it.

But while an employer group can negotiate a guaranteed issue offer for their employees, that doesn't mean there are not any underwriting requirements in order to get it because there are. Since the insurance company is taking on people they wouldn't normally insure, that's a big risk. In exchange, they usually have some stipulations in order to make it available.

I'll go over those underwriting requirements in another article, but for now, I just wanted to cover the types of underwriting that an employee can get either on their own with the help of their employer.

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Michael is a champion of guaranteed issue for employees in the workplace. He's been an insurance agent since 1992 and has worked with thousands of employees.