Underwriting Key Person Insurance

Underwriting for Key Person Insurance works similarly to underwriting for other types of life insurance policies, with a focus on assessing the risk associated with the key person being insured. The underwriting process helps the insurance company determine the premium rates, coverage amount, and terms of the policy. Here’s how the underwriting process typically works for Key Person Insurance:

1. Application Stage:

   • The company, which is the policyholder, applies for Key Person Insurance on behalf of the key person or key persons they want to insure.
   • The application typically includes detailed information about the key person’s personal and medical history, lifestyle, occupation, and financial details.

2. Medical Examination (if required):

   • Depending on the coverage amount and the key person’s age and health, the insurance company may require a medical examination. This can include blood tests, urine tests, and other diagnostic tests.
   • The results of the medical examination help the underwriter assess the key person’s overall health and determine the risk associated with insuring them.

3. Risk Assessment:

   • The insurance company’s underwriters analyze all the information provided in the application, including the medical examination results.
   • They assess the key person’s overall health, lifestyle factors (e.g., smoking, alcohol consumption), medical history (e.g., pre-existing conditions), and occupation (e.g., hazardous jobs).
   • The underwriters also consider the coverage amount requested, the term of the policy, and the financial impact on the company if the key person were to die or become disabled.

4. Underwriting Decision:

   • Based on their assessment of the risk, the underwriters make a decision on whether to approve the application and, if so, at what premium rate.
   • If the key person is considered to be high-risk due to health or other factors, the insurance company may offer coverage with higher premiums or exclusions related to specific conditions.

5. Policy Offer:

   • If the application is approved, the insurance company provides the company (policyholder) with a policy offer. This offer includes details of the coverage, premium amount, policy terms, and any special conditions or exclusions.
   • The company can review the offer and decide whether to accept it.

6. Policy Issuance:

   • If the company accepts the policy offer, the insurance company issues the Key Person Insurance policy. Premium payments are typically required to activate the coverage.

It’s important to note that the underwriting process for Key Person Insurance can vary between insurance companies, and the specific requirements may differ based on factors such as the key person’s age, coverage amount, and health status. Additionally, the insurance company may periodically review the key person’s health status throughout the life of the policy, especially if the policy is substantial or if health changes occur.

What can the terms offered be?

When a key man policy is issued at standard rates, the price remains the same as the quote. A loaded premium is when the underwriter sees fit to increase the premium due to possible health issues or something else that has come to light since the original application.

A critical illness exclusion is something that can be added to the terms once offered. For example, someone may be excluded for cancer if they have previously had cancer. Policies are sometimes postponed if the underwriter wants to wait for further evidence. Or for cool-off periods since a previous health issue. In some cases, policies may be declined.