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Glossary of Health Insurance Terms To Know

Underwriting (What It Is And How It Works)

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"Underwriting" is the process by which an insurance company decides whether to “write” (or offer you) an insurance policy, and, if so, at what price (premium). The amount of the premium varies in large part by the amount of risk being insured. (Other factors included in determining the amount of premium include administrative costs, such as the cost of underwriting, and gains/losses from investments).

Health Insurance Underwriting

With the Patient Protection and Affordable Care Act (sometimes referred to as ACA or “Obamacare”), health insurance companies can no longer deny individuals from purchasing health insurance coverage based on gender, age, or health status, so it has changed the underwriting process in the health insurance industry significantly.  

However, the underwriting process still exists in other areas of insurance.  

Life Insurance and Disability Income Insurance Underwriting

Underwriting for a life or disability income insurance policy often involves looking at your medical history and the risks involved in your life.

  • With respect to medical history: The history a company looks at varies from company to company. Most companies look for specific information, such as have you ever had a heart attack. They also ask look to more general information for the recent past. For example, an insurer is likely to ask questions such as: "Have you been to a doctor during the past 24 months? If so, please describe the reason."
  • With respect to risk: Insurers ask about risks that put your life (for life insurance) or health (for health insurance) at risk. For instance, expect that a life insurance application will ask whether your activities involve risk, such as: "Do you sky dive? With health insurance policies, you're likely to be asked whether you smoke or drink alcohol excessively. 
  • There are some restrictions related to the use of genetic information.  For more information, see: Genetic Information Nondiscrimination Act (GINA).

As part of the underwriting process, member insurance companies contact the MIB to learn what other member companies have previously learned about your medical history or risks. 

If you are interested in the history of the word "Underwrite:" Common wisdom says the word goes back to the days when Lloyds of London first started insuring ships. Then, as now, insurance would be provided by a syndicate of insurers made up of individuals willing to take the risk of providing insurance against loss. The person authorizing the assumption of that financial risk would write his name under the description of the risk. The process became known as "Underwriting."

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