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9 – APPLICATION AND UNDERWRITING

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9.1 Process overview

The application and underwriting process is how a life insurance company evaluates risk and decides whether to issue a policy. Modern tools have made this process faster, but the core steps remain the same.

9.1.1 Agent’s role

👀 The agent is often called the “eyes” of the insurer.

✔ Collects accurate client information
✔ Observes the applicant (in person or virtually)
✔ Submits information to the insurer

📌 Important:
The agent does not assess risk — that is the underwriter’s job. The agent’s role is to gather and submit clear, honest, and complete information.

9.1.2 Completing the application

📝 This is the foundation of underwriting.

The agent must:

✔ Ensure answers are complete and accurate
✔ Explain consequences of false or missing info
✔ Verify identity (e.g., passport or driver’s licence)
✔ Witness signatures
✔ Submit the application and any premium promptly

💻 Modern updates:

  • Electronic applications
  • Virtual meetings
  • E-signatures
  • Electronic policy delivery

These tools improve speed and convenience while maintaining compliance.

9.1.3 Underwriting

🔍 Underwriting = risk assessment

The underwriter evaluates:

  • Medical history
  • Financial background
  • Lifestyle factors

📊 Typical approach:

1️⃣ Start with a baseline score (standard risk)
2️⃣ Increase score for higher risk factors
3️⃣ Decrease score for lower risk factors
4️⃣ Final score determines the risk class

✔ Standard cases → quick approval
✔ Non-standard cases → more information required

🤖 Some insurers now use algorithms and AI to support decisions.

9.1.4 Issuing and delivering the policy

📦 Policy delivery is still part of underwriting.

Before delivery, the agent must confirm:

✔ No changes in health
✔ No major financial changes
✔ No significant lifestyle changes

❗ If something changed, delivery may be delayed or reassessed.

🔑 Key takeaways

✨ Agents gather — underwriters decide
✨ Accuracy on the application is critical
✨ Technology is speeding up underwriting
✨ Policy delivery confirms nothing has changed

9.2 Application

The application is the foundation of underwriting. It determines how the insurer evaluates risk and decides whether to issue a policy.

Helping a client complete it is often called field underwriting.

✔ The agent may guide the client or ask questions verbally and record answers
✔ Applications can range from 5 to 50+ pages, depending on policy and insurer

Accuracy and honesty are essential.

9.2.1 Policy details

These details define how the policy will work.

9.2.1.1 Applicant / policyholder

👤 The applicant becomes the policyholder once the policy is issued.

Application records:

  • Legal name
  • Address
  • Contact details

If the applicant is not the life insured, a contingent (successor) owner is usually named.

9.2.1.2 Life insured

🛡 The life insured is the person whose life is covered.

✔ Applicant and life insured can be the same or different
✔ Joint-life policies must specify:

  • First-to-die
  • Last-to-die

9.2.1.3 Beneficiary

💰 Receives the death benefit.

Can be:

  • One or more individuals
  • Trusts or corporations
  • Contingent beneficiaries

📌 Key rules:

  • Default = policyholder’s estate
  • Changeable after issue unless irrevocable
  • Irrevocable beneficiaries need written consent for changes

9.2.1.4 Type of policy

Applicants select the policy type:

  • Term
  • Participating
  • Non-participating
  • Universal Life (UL)

UL policies may require choices for:

  • Cost of insurance (COI)
  • Death benefit structure

📊 UL & whole life often require policy illustrations.

9.2.1.5 Riders and supplementary benefits

Optional add-ons:

  • Guaranteed insurability benefit (GIB)
  • Family coverage rider
  • Other supplementary benefits

Usually chosen at issue time.

9.2.1.6 Premium options

💳 Payment frequency options:

  • Annual
  • Semi-annual
  • Quarterly
  • Monthly (PAC)

📌 Modal factors should be explained clearly.

9.2.1.7 Dividend options

For participating policies:

  • Premium reduction
  • Paid-up additions (PUAs)
  • Term insurance

9.2.2 About the applicant

Underwriters review:

✔ Financial ability
✔ Insurable interest
✔ Justification of coverage amount
✔ Insurance history

9.2.2.1 Financial ability

Assesses ability to afford premiums.

May include:

  • Occupation
  • Employer
  • Income sources
  • Net worth
  • Financial support from others

9.2.2.2 Insurable interest

📌 Must exist at policy issue.

Typically includes:

  • Own life
  • Spouse
  • Child/grandchild
  • Dependents
  • Employees
  • Persons with financial ties

✔ Written consent from life insured can satisfy this requirement
✔ Contract remains valid even if interest later disappears

9.2.2.3 Justification of coverage amount

Insurance should replace financial loss, not create profit.

Underwriters check if requested coverage is reasonable.

9.2.2.4 Insurance application history

Applicants must disclose:

  • Existing policies
  • Pending applications

This prevents excessive coverage.

9.2.3 About the life insured

Insurers gather details affecting mortality risk.

9.2.3.1 Personal information

Includes:

  • Name & DOB
  • Address & nationality
  • SIN
  • Occupation
  • Bankruptcy history

Lifestyle questions:

  • Avocations (risky hobbies)
  • Travel plans
  • Smoking & substances
  • Alcohol use
  • Driving record
  • Criminal history

9.2.3.2 Medical information

🩺 Major underwriting factor.

Covers:

  • Height/weight
  • Physician details
  • Medical history
  • Medications
  • Treatments
  • Family health history
  • Pregnancy history (if applicable)

“Yes” answers require details.

9.2.4 Incomplete or erroneous information

Honesty protects the policy.

Problems arise from:

✔ Mistakes
✔ Fraudulent misrepresentation
✔ Incomplete information

9.2.4.1 Mistake

An honest error.

📌 If material and found within 2 years → contract can be voided
After 2 years → policy becomes incontestable (unless fraud)

9.2.4.2 Fraudulent misrepresentation

🚨 Intentional false information.

Example: claiming non-smoker status when actually smoking.

Possible outcomes:

  • Policy voided
  • Premium/benefit adjustment
  • Claim denial

Agents must watch for inconsistencies.

9.2.4.3 Incomplete information

Missing answers cause:

⏳ Delays
⚠ Applicant remains uninsured until corrected

9.2.5 Agent’s comments

📝 Space for professional observations:

  • Employment stability
  • Health or smoking observations
  • Opinion on accuracy of answers

These notes help underwriters make fair decisions.

🔑 Key takeaways

✨ The application drives underwriting
✨ Accuracy and honesty are critical
✨ Insurable interest must exist at issue
✨ Medical and lifestyle details heavily impact decisions
✨ Agent observations matter

9.3 Temporary insurance agreement (TIA)

A Temporary Insurance Agreement (TIA) provides short-term life insurance coverage while a full application is being underwritten.

⏳ Underwriting can take weeks or months
🛡 TIA helps protect the applicant during this waiting period
📌 Not automatic — must meet strict conditions

9.3.1 Requirements for coverage

To qualify for TIA:

✔ Completed life insurance application submitted
✔ At least one month’s premium paid

Most insurers also require:

📝 A separate TIA form
❤️ “No” answers to health questions

Typical questions may ask if the life insured:

  • Was advised to undergo tests or surgery with unknown results
  • Has history of major illnesses (heart disease, cancer, stroke, diabetes, etc.)

❗ If any answer is “Yes” → TIA is denied

👶 Age limits often apply (e.g., 15 days to 70 years old)

9.3.2 Coverage limits

TIA coverage is usually limited to the lesser of:

💰 A fixed maximum (e.g., $250,000–$500,000)
💰 The amount applied for

📌 Same terms as the applied policy apply

🚫 Suicide exclusion still applies
→ No payout in case of suicide

9.3.3 Coverage duration

TIA coverage may start:

✔ When application + premium are submitted
OR
✔ After all medical evidence is received

TIA ends at the earliest of:

⏱ Expiry date (commonly 60–90 days)
📜 Policy becomes active
❌ Application denied and premium returned

Underwriters can also revoke TIA if:

  • More information is needed
  • Risk appears unacceptable
  • Written notice + premium refund provided

9.3.4 Agent’s responsibilities

TIA should only be issued when:

✔ No red flags in the application
✔ Agent believes policy is likely to be approved
✔ First premium is collected

⚠ TIA is not guaranteed coverage

Agents must act carefully and responsibly.

🔑 Key takeaways

✨ TIA offers temporary protection
✨ Requires good health answers and premium payment
✨ Coverage is limited and conditional
✨ Ends when policy decision is made
✨ Agent judgment is critical

9.4 Underwriting by the insurance company

Once a completed application is received, the insurer evaluates the risk profile of the life insured. This process determines:

✔ Whether coverage will be offered
✔ At what premium
✔ Under what conditions (standard, rated, exclusions)

Underwriting can be traditional or accelerated, depending on the case.

9.4.1 Underwriting guidelines

Every insurer has internal rules that guide decisions.

📘 Guidelines typically include:

  • Description of conditions being assessed
  • Key evaluation factors
  • Required additional evidence
  • Likely outcomes
  • Height & weight tables for standard risks

🔍 Some guidelines are divided into:

  • Medical underwriting
  • Non-medical underwriting
  • Financial underwriting

💡 Agents don’t underwrite but benefit from understanding guidelines to set realistic expectations.

9.4.2 Attending physician’s statement (APS)

If medical history raises concerns, the underwriter may request an APS.

🩺 Provided directly by the doctor
💵 Paid for by the insurer

Usually includes:

  • Medical history summary
  • Current treatments or medications
  • Doctor’s prognosis

9.4.3 Medical exam

If more clarity is needed, a medical exam may be required.

🧪 Possible tests:

  • Blood, urine, saliva
  • ECG
  • Stress tests
  • Full physician exam (for large policies)

✔ Conducted by paramedical providers or physicians
✔ Paid by the insurer

📱 Some cases use phone or online interviews instead of exams.

9.4.4 Medical Information Bureau (MIB)

Many insurers belong to the Medical Information Bureau.

📂 MIB helps insurers share coded medical and risk information.

Applicants must:

✔ Be informed about MIB
✔ Sign consent for data access

⚠ Important:

  • MIB reports flag inconsistencies
  • They cannot be used alone to decline coverage
  • Underwriters must verify information

9.4.5 Motor vehicle record (MVR)

Driving history affects mortality risk.

🚗 MVR may show:

  • Traffic violations
  • DUI charges
  • Accidents
  • Suspensions
  • Demerit points

⚠ Poor records often lead to rated policies (higher premiums).

9.4.6 Inspection report

Used when concerns remain.

📞 Often done by phone, sometimes in person.

Focus areas:

  • Habits (smoking, alcohol)
  • Finances
  • Occupation
  • Driving record
  • Avocations

9.4.7 Requests for clarification

If answers are vague or incomplete:

📩 Underwriters ask for more details
⏳ This slows processing

✔ Clear applications = faster approvals

9.4.8 Financial underwriting

Ensures:

💰 Coverage amount is reasonable
💰 Applicant can afford premiums

Examples:

  • Income replacement → multiple of income based on age
  • Estate needs → tied to net worth
  • Students → based on future occupation

9.4.9 People who are not Canadian citizens

Different rules may apply.

9.4.9.1 Permanent residents

Generally eligible like citizens but may require:

  • Proof of status
  • Medical exams if new to country
  • Possible travel exclusions or ratings

9.4.9.2 Awaiting permanent residency

Eligibility varies.

Coverage limits may depend on:

  • Occupation skill level
  • Work permits
  • Proof of income
  • Medical screening

9.4.9.3 International students

🚫 Usually not eligible unless permanent residency applies.

9.4.10 Frequent travellers

✈ Insurers assess:

  • Countries visited
  • Trip duration
  • Travel frequency

Possible outcomes:

  • Substandard rating
  • Country exclusions

9.4.11 Avocations

High-risk hobbies raise concern.

Examples:

🏔 Mountain climbing
🪂 Parasailing
🤿 Scuba diving
🏎 Race car driving
🛩 Private piloting
🌍 Travel to conflict zones

Underwriters assess:

  • Frequency
  • Experience/certification
  • Accident history

9.4.12 Accelerated underwriting

Uses technology and data instead of traditional exams.

💻 Tools include:

  • Data analytics
  • Algorithms
  • AI modeling
  • MIB data
  • Driving records
  • Credit data

✅ Fully underwritten decisions
✅ Can offer preferred rates
✅ Faster processing

🔍 Accelerated vs Simplified Issue

Simplified Issue

✔ Short application
✔ Quick accept/reject
❌ No preferred rates
❌ Higher premiums

Accelerated Underwriting

✔ Fully underwritten
✔ Uses data instead of exams
✔ Preferred & rated classes possible
✔ Closer to regular pricing

🔑 Key takeaways

✨ Underwriting protects insurer and policyholders
✨ Medical, financial and lifestyle factors matter
✨ Honest and complete applications speed approval
✨ Technology is making underwriting faster
✨ Risk level directly affects premiums

9.5 Risk classes and their impact on premiums

When assessing a life insured, the underwriter starts with a baseline score (e.g., 100) and adjusts it up or down based on medical, lifestyle, and financial factors.

📊 The final score determines the risk class, which directly impacts premiums.

Each insurer has its own system, but the common categories below are widely used.

9.5.1 Standard risk

👤 Represents the average person of similar age and profile.

✔ Falls within normal underwriting limits
✔ Premiums charged at standard rates

💡 Most applicants are placed here.

9.5.2 Preferred risk

🌟 For individuals with exceptionally low risk.

Usually requires:

  • Additional medical screening
  • Excellent health history
  • Healthy lifestyle

🎯 Benefit:

✔ Lower-than-standard premiums

9.5.3 Rated risk

⚠ Indicates above-average risk, but still insurable.

Reasons may include:

  • Health concerns
  • Risky lifestyle
  • Hazardous occupation or hobbies

💰 Result:

✔ Higher premiums
✔ Extra charges depend on severity of risk

9.5.4 Exclusions

🚫 Sometimes one specific factor is the concern.

Instead of declining, the insurer may:

✔ Issue coverage
✔ Add a policy exclusion

📌 Meaning:

The insurer will not pay if death results from that excluded cause.

9.5.5 Upgrading risk class

📈 Improvements can sometimes reduce premiums.

Important rules:

❌ Insurers cannot downgrade a policy after issue
✔ They may remove or reduce ratings if risk improves

Examples:

  • Health condition improves
  • Lifestyle risk eliminated
  • Medical issue resolved

💡 Competition motivates insurers to reconsider ratings.

9.5.6 Declined

⛔ Indicates the person is uninsurable.

Two types:

Temporary decline

✔ Reapplication possible later
✔ Often due to recent medical issues

Permanent decline

❌ No reconsideration
❌ Risk considered too high

🔑 Key takeaways

✨ Risk class = major driver of premiums
✨ Better health & lifestyle = better rates
✨ Ratings can sometimes be improved
✨ Exclusions allow coverage when one risk factor exists
✨ Declines may be temporary or permanent

9.6 Client factors that may affect premiums

Life insurance premiums are largely influenced by the net cost of pure insurance (NCPI) — the cost tied to the probability of death during coverage.

🧩 Insurers evaluate several client-specific risk factors during underwriting. These factors directly affect how much premium is charged.

9.6.1 Age

🎂 Age is one of the most important pricing factors.

✔ Risk of death increases with age
✔ Higher age at issue = higher premiums
✔ Increases are not linear — risk rises faster after age 60–65

➡ Younger applicants generally secure lower premiums.

9.6.1.1 Attained age

📌 Premiums are based on the life insured’s attained age at issue or renewal.

Depending on the insurer, this may mean:

  • Age on last birthday
  • Age on next birthday
  • Age on closest birthday

✔ Even a few months’ difference can impact pricing.

9.6.2 Gender

👩‍🦰👨 Statistics show women generally live longer than men.

✔ Male premiums are typically higher
✔ Female premiums are typically lower
✔ Based purely on mortality data

Gender considerations for transgender and non-binary individuals

🌈 Underwriting approaches vary by insurer because historical data is limited.

Possible approaches include:

✔ Using preferred gender
✔ Using gender assigned at birth
✔ Requiring hormone therapy or transition surgery
✔ Using gender on official documents
✔ Offering unisex (blended) rates

⚠ Applications may be postponed if gender confirmation surgery is upcoming.

💡 Comparing insurers can help find better rates.

9.6.3 Health status or risk class

🩺 Health has a major impact on premiums.

Common categories:

✔ Standard
✔ Above-standard (preferred)
✔ Below-standard (rated)

📌 Smoking often results in below-standard rates.
📌 Better health = lower premiums.

9.6.4 Hazardous occupation

🏗 Certain jobs increase mortality risk.

Examples:

  • Mining
  • Construction at heights
  • Aviation-related roles

✔ May result in a rating
✔ Leads to higher premiums

9.6.5 Hazardous lifestyle

🪂 Risky hobbies and activities can affect coverage.

Examples:

  • Scuba diving
  • Skydiving
  • Mountain climbing
  • Racing sports

Possible outcomes:

✔ Policy exclusion for the activity
✔ Higher premiums
✔ Application denial in extreme cases

🔑 Key insights

✨ Premiums reflect personal risk
✨ Age and health are top pricing drivers
✨ Occupation and hobbies matter
✨ Gender-based pricing follows mortality data
✨ Shopping around can improve outcomes

9.7 Company factors that may affect premiums

Life insurance premiums are not influenced only by the client — insurance company conditions also play a role.

📌 Insurers adjust pricing on new policies when their costs or expected returns change.

Main drivers:

✔ Mortality costs
✔ Administration costs
✔ Investment returns

9.7.1 Mortality costs

💡 Mortality cost = what the insurer actually pays in death benefits.

If death claims are higher than expected:

➡ The insurer may raise premiums on new policies
➡ This helps balance claim payouts and financial stability

✔ Higher claims = higher pricing pressure

9.7.2 Administration costs and expenses

🏢 A life insurance company operates like any business and has many expenses:

  • Selling costs (marketing, agent commissions, salaries)
  • Underwriting costs (application review, medical exams)
  • Policy issue and administration
  • Claim investigations
  • Claim processing

📌 Insurers try to offset these through:

✔ Investment earnings
✔ Policy fees
✔ Premium income

➡ Rising operating expenses can lead to higher premiums on new policies

9.7.3 Investment returns

📈 Insurers invest policy reserves to earn returns.

These earnings help cover:

✔ Death benefits
✔ Operating costs
✔ Policy guarantees

If investment returns:

⬇ Decrease
➡ Premiums for new policies usually increase

✔ Lower returns = less offset for costs
✔ Premium adjustments maintain financial strength

🔑 Key takeaways

✨ Premiums reflect both client risk and company economics
✨ Higher claims or expenses push premiums up
✨ Investment performance matters
✨ Changes mainly affect new policies

9.8 Reinsurance

Reinsurance is a risk-management tool for insurance companies. It helps insurers stay financially strong when issuing large policies.

🔍 What is reinsurance?

🛡 Reinsurance = insurance for insurance companies

Instead of carrying all the risk alone, an insurer can transfer part of the risk to another insurer (a reinsurance company).

✔ Helps manage very large coverage amounts
✔ Protects the insurer’s financial stability
✔ Allows insurers to offer higher coverage to clients

📌 Retention limit

Every insurance company sets a maximum amount of risk it is willing to keep on one life.

This is called the:

➡ Retention limit

If a policy exceeds this limit:

✔ The insurer may still issue the policy
✔ But only if part of the risk is transferred to a reinsurer

⚙️ How it works

1️⃣ Client applies for large coverage
2️⃣ Amount exceeds insurer’s retention limit
3️⃣ Insurer transfers excess risk to a reinsurance company
4️⃣ Risk is shared between companies

💡 In simple terms:
The insurer protects itself from very large claims by sharing the risk.

🔑 Key takeaways

✨ Reinsurance protects insurance companies from large losses
✨ Retention limit = max risk insurer keeps
✨ Excess coverage is shared with reinsurers
✨ Enables insurers to offer higher coverage amounts safely

9.9 Issuing the policy

Issuing a policy is not the final step in underwriting.
The process continues until the policy is delivered and accepted.

9.9.1 Delivery

📦 Policy delivery confirms that coverage can officially begin.

In the past, delivery was done face-to-face so the agent could verify that nothing had changed in the life insured’s situation.

Today, delivery can also be:

✔ Electronic (email or secure portal)
✔ Notification by text for accelerated underwriting cases
✔ Traditional agent delivery for fully underwritten cases

🔍 Agent’s role at delivery

For policies that are not automatically delivered:

The agent should:

✅ Review the contract carefully with the client
✅ Confirm the policy matches what was applied for
✅ Explain key provisions, including:

  • ⏳ Grace period
  • 🔒 Incontestability
  • ⚠️ Suicide exclusion

📝 Confirming no change in insurability

Before final delivery, the agent must confirm there has been no material change since the application.

Possible changes include:

🏥 Health
💼 Occupation
🎯 Recreational activities
💰 Financial status

✅ When delivery can be completed

Delivery can be finalized when:

✔ No material changes occurred
✔ Any outstanding premiums are paid
✔ Client confirms information is still accurate

🚫 When delivery must NOT be completed

The agent must pause delivery if:

❌ The client reports changes
❌ Payment is missing
❌ The agent suspects a material change

In these cases:

➡ The agent contacts the underwriter
➡ The client is informed the policy is not yet in force

🔑 Key takeaways

✨ Underwriting continues until delivery and acceptance
✨ Delivery confirms policy details and insurability
✨ Material changes can delay or stop policy activation
✨ Proper delivery protects both client and insurer

9.10 Acceptance

Policy acceptance is the final step before coverage is fully active.
It confirms that the policyholder has received and agreed to the contract.

📝 Policyholder confirmation

To activate the policy, the policyholder must:

✅ Sign and date an acknowledgment of receipt
✅ Confirm acceptance of the policy terms

✔ This can be done electronically or on paper.

🔟 10-day free-look provision (right of rescission)

After accepting the policy, the policyholder must receive at least 10 days to review it.

During this period, the policyholder can:

✔ Return the policy
✔ Cancel it for any reason
✔ Receive a full refund of premiums paid

This is called:

➡ Right of rescission
➡ Also known as the 10-day free-look provision

⚖️ Understanding rescission

Rescission means the legal right to cancel a contract within allowed limits.

It can be used by:

👤 Policyholder

  • During the 10-day review period
  • If they change their mind

🏢 Insurer

  • During the two-year contestability period
  • At any time if there was fraudulent misrepresentation
  • If the contract includes a cancellable clause

🔑 Key takeaways

✨ Acceptance activates the policy
✨ Signed acknowledgment confirms agreement
✨ 10-day free-look protects the client
✨ Honest disclosure keeps the policy secure

9.11 Group life insurance

Group life insurance follows a different underwriting approach than individual life insurance.
Its main strength is accessibility — many members receive coverage without individual medical checks.

💡 Key idea: Base coverage is usually granted regardless of personal health, but the group as a whole is assessed.

9.11.1 Basic group life insurance

👥 Underwriting focuses on the group’s overall profile, not individuals.

Insurers review:

  • Age mix
  • Gender mix
  • Occupations
  • Past experience with similar groups

📊 Premium calculation:

  • Priced per $1,000 of coverage
  • Separate rates may apply to different employee classes
  • Same rate applies to all members in a class (ignores personal health or smoking)

🔄 Premiums are often recalculated yearly to reflect demographic changes.
➡ Older average age = higher premiums.

9.11.2 Additional coverage

Some plans allow members to buy extra coverage beyond the base amount.

📝 Requirements:

  • Evidence of insurability is usually required
  • Individual underwriting may apply

💰 Premiums typically depend on:

  • Age
  • Smoking status

9.11.3 Creditor life insurance

Creditor insurance is a form of group life coverage tied to loans.

✔ Usually requires basic health questions
✔ Correct answers may allow automatic approval
✔ Certain answers can trigger medical underwriting

⚠️ Important:
Applications offered through lenders must be completed without guidance from bank staff (since they are not insurance agents).

💰 Premium structures may be:

  • Monthly rate per $1,000 of outstanding balance (common for credit cards)
  • Monthly rate per $1,000 of original balance (common for mortgages)
  • Rates vary by age group

9.11.3.1 Post-claim underwriting

⚠️ A major concern in creditor insurance.

Post-claim underwriting means:

  • Minimal underwriting at application
  • Full underwriting only after death

🚩 Risk:
If later underwriting finds the person was not eligible, the claim can be denied.

❗ This creates uncertainty because denial happens only when a claim is made — when no replacement coverage is possible.

🔑 Key takeaways

✨ Base group coverage often requires no individual underwriting
✨ Premiums reflect group demographics
✨ Extra coverage usually requires proof of insurability
✨ Creditor insurance can involve post-claim underwriting risk
✨ Understanding limits and rules helps avoid surprises

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