Individual life underwriting, pricing, and claims

From application to claim

Underwriting evaluates the proposed insured and the amount requested. Pricing translates accepted risk and benefits into a premium. Claims administration determines the payment due and its recipient.

Gather evidence and classify risk

The producer collects complete, accurate application answers and relevant observations; the insurer decides whether to accept the risk. Evidence may include medical history, examinations, an attending physician's statement, financial information, and consumer reports. Financial underwriting relates the amount requested to a legitimate need. Medical underwriting evaluates mortality. Industry information exchange findings prompt verification rather than replacing it.

Preferred, standard, and substandard classifications reflect different expected mortality. Substandard risks may pay more; other applications may be postponed or declined. Product terms and permitted practices vary; apply the actual contract and governing law.

Under 15 U.S.C. § 1681d(a), written notice of an investigative consumer report is due no later than three days after it is first requested and includes consumer rights. Under subsection (b), a timely written request for the investigation's nature and scope requires disclosure within five days after receiving that request or first requesting the report, whichever is later.

California requires written informed consent for insurer HIV testing and protects confidentiality (§ 799.03). A positive HIV test alone cannot support declining an application; actuarial and experience standards govern underwriting distinctions (§ 799.02). Characteristics such as sexual orientation and ZIP Code cannot determine who must undergo an HIV test (§ 799.05).

Price the promise

Premiums reflect mortality, interest, and expenses. Holding other assumptions constant, higher expected mortality or expenses raises the premium needed; higher assumed investment interest lowers it. A net premium excludes expense loading; a gross premium includes it. Monthly installments may total more than an annual premium because of payment frequency charges.

Pay the claim

The insurer verifies proof of death, coverage, and the proper recipient, including assignments. Outstanding policy loans and accrued interest can reduce proceeds. Settlement may be a lump sum or an available alternative. California § 10170 governs settlement choices; § 10172 addresses payment under the policy or assignment and competing claims.

Under California § 10172.5, covered proceeds unpaid beyond thirty days after death bear interest from the date of death. A beneficiary's written election of a non-lump-sum settlement is a statutory exception. This does not authorize unnecessary delay.