When a life insurance application reaches the desk of a life insurance company, it is sent to the underwriter (where the risk appraisal process begins). Risk appraisal usually involves selecting insurance applicants who meet the standards of insurability and then assigning them to the suitable risk classes. This process is necessary to avoid adverse selection (which we will talk about below) and then to assign them fair premium rates.

It is a fact in insurance that if all people having risks of the same nature were to become associated with insurance purposed and if they were to stay associated, statistics could be compiled, rates established, a fund accumulated, and losses paid, without individual risk appraisal and without difficulty. In reality, however, this won’t happen. Only some of the people with a given risk of loss will willingly become associated, and that is why some standard of selection must be established.

If the applicants were accepted to any insurance group purely on a basis of whether they wanted insurance, the proportion of people with higher than average risks of loss would definitely increase over time. This would increase the number of losses in any given year, and the insurance premium would have to be increased. To complicate the situation further, as the premium increased, those insured with better than average risks would probably begin to withdraw, leaving a higher proportion of people with less favorable risks.

Adverse Selection, or Anti-Selection

This tendency of people with greater risks of loss to apply for life insurance more often than their “more fortunate” peers is called adverse selection. You can think of it as “selection against the company.” This trend is clearly noted in the application for life insurance. People with less favorable risks are more likely and eager to apply for it.   For example, those with failing health are more likely to renew or convert their term life insurance, and they will elect the largest amount of protection available. Adverse selection is a perfectly natural human tendency, but in the interest of policyholders, life insurers must establish standards of selection to protect against it.

Risk Selection

Adverse selection is not the only reason why life insurance companies cannot accept every application they receive. In some cases, it’s simply not feasible to charge a premium appropriate to the risk, especially when the probability of death is high. In some cases, statistics and data have not been developed and an appropriate rate simply cannot be assigned. With that being said, every life insurer has established a broad general range of risks that are acceptable. The first step in this risk selection process is to determine whether or not the applicant falls within that range.

The next step involves differentiation within the range of acceptable risks. Insurance applications that are accepted are then assigned premiums based on the risks presented by their health status, occupation, and other risk factors.

Generally speaking, the risk appraiser seeks to select applicants in such as way that those accepted will be relatively comparable to the insured lives on which the company’s standard rates are based. Many people whose insurability falls below those standards still might be accepted, but they will be accepted at an increased premium (or for different insurance plans). As always, the attempt is made to assign a premium based on the risk of the applicant.

Sources of Risk Appraisal Information

Lay underwriters usually perform risk appraisal. Lay underwriters are underwriters who do not have medical degrees. If a difficult issue arises, it is then brought to the attention of a medical underwriter (who is an M.D.). Usually, however, the lay underwriter can evaluate the insurability of the applicant with respect to the plan and amount of life insurance applied for and can decide whether additional information is required or not. Usually, this evaluation is made based on the application form, the agent’s statement, the medical exam results, and the inspection report.

The Medical Exam

A life insurance company usually appoints doctors in the area that they do business as its medical examiners. The company’s life insurance agents will refer the applicant to these physicians in order to undergo the health exam. The doctors will receive a fee for each examination and also provides the insurance company peace-of-mind to know that they will always have a doctor available.

The medical examiner looks into the overall health and the medical history of the applicant. He will weigh the applicant and take his/her height and other measurements. He will also check the pulse, blood pressure, and other vitals requested by the insurance company. Blood and urine tests will also be required. The doctor, after checking everything the insurance company requests, will sign the medial report and submit it back to the life insurance company. It is worth noting that when the doctor performs the medical exam, he is acting as the life insurance company’s agent (in the legal sense of the word). His statements and activities during this exam are governed by the general principles of agency law.

Nonmedical Business

Most life insurance companies issue some business without a medical examination. Such cases are usually limited with respect to the amount of insurance purchased and the age of the applicant. For example, a company might issue policies of $20,000 or less to applicants of less than 40 years old without a medical exam. Keep in mind, however, that every life insurance company establishes their own nonmedical business.

For nonmedical life insurance categories, relatively detailed medial questions are included in the application and are asked by the agent. With that being said, if there is any indication of medical issues, the company can always require that the applicant undergo a medical exam.

The Inspection Report

One other source of risk appraisal information utilized to a very large extent by life insurance companies is the commercial inspection company. Life insurance companies engage such organizations to make objective, unprejudiced investigations of people being considered for life insurance. The occupation, financial well-being, and overall reputation of the applicant in his community are reported and verified by a 3rd party.

The Factors of Life Insurance Risk Appraisal

Generally speaking, the underwriter first reviews the application for completeness: Is it signed? Are all questions answered? After that, it is reviewed with respect to age, occupation, military connections, and other factors. If additional information is required about the applicant’s medical history, the medical examiner may be contacted for additional questioning. Therefore, additional information is frequently requested about reported injured or other conditions for which the proposed insured has received medical treatment. All risk appraisal information is then reviewed. The most important factors of risk appraisal are age, sex, build, hobbies, medical conditions, occupation, and family history. Let’s take a look at some of these:

Age of the Applicant

The age of the applicant may be the most important thing. The probability of death increases with each year of life after age 11 and the premium upon the start of a life insurance policy increases accordingly. In the risk appraisal process, age has significance in other ways as well. The onset of certain physical conditions at an early age, for example, may have much more serious implications than the same conditions at a later age.

Sex of the Applicant

The sex of the applicant makes little difference in terms of his/her insurability. Limits are usually lower for married, dependant women, but this is determined by the dependent status rather than by health conditions. Medical advances and modern science have generally removed the extra hazard associated with having children, and today women are usually considered for life insurance on the same terms as those for men.

Build of the Applicant

The relationship between height and weight, commonly called “build” or maybe even BMI (body mass index) has been found to have a significant relationship to longevity. Unusually tall people show unfavorable mortality experience. Overweight, obese people also have higher rates of death. Underweight people can also cause red flags to be thrown up. A healthy weight and build are usually the most favorable to insurance companies.  Life insurance companies are fairly selective when it comes to BMI and issuing their top rates, but you may get away with a slightly high BMI if your other health markers are favorable.

Occupation of the Applicant

The occupation of the applicant is important with respect to special hazards and has particular significance in appraising insurability for additional benefits such as those payable in the event of death by accidental means, or benefits for disability. Related to occupation is the appraisal of the applicant’s financial condition and ability to pay premiums.

Medical Conditions of the Applicant

The physical condition of the applicant is very important, but it is not necessarily the most important factor. Such physical findings as heart murmur, diabetes, high blood pressure, of gastric ulcer may justify declining the application of accepting it only for a high premium.

Hobbies and Habits of the Applicant

The hobbies and unfavorable surroundings, both at work and at home, will also be appraised. This aspect is usually referred to as the “moral hazard.” This is an extremely difficult area and requires a great deal of judgment. Things like tobacco use can show up on the medical exam, but other dangerous habits are usually are to test for. Most habits will not cause the applicant to be denied coverage. The insurer does not censure habits, only appraises them.

Family History of the Applicant

Family medical history is very significant. Death of both parents before age 50 (especially if you are looking for life insurance after age 50), for example, or two or more instances of heart diseases, mental illness, diabetes, or epilepsy in the applicants immediate family, may have considerable significance in connection with his insurability.

The Numerical System of Risk Appraisal

All of this information is considered in arriving at an evaluation of the risk. In order to make the process as objective as possible, a numerical system is used by underwriters in most life insurance companies today. Under this system, a numerical value is assigned to particularly significant risk factors. The standard risk is assumed to be 100 and conditions tending to increase death add to this value; those tending to decrease it reduce the total. Therefore, one stomach ulcer might be assigned a value of 30, gall bladder surgery a value of 25; a favorable family history might be assigned a value of -5, a “boring job” a value of -10, and so on until all significant factors are considered. If the total falls within a numerical band of 75 to 120, the risk is usually said to be standard. Above this, the risk usually will be rated; that is, an extra premium will be assigned. Below 75, the risk is sometimes said to be “preferred” and policies are sometimes issued at special rates for such persons. It should be pointed out, however, that the numerical system is used only as a general guide; it is never a substitute for judgment.

Risk Commitment

Utilizing this system and the entire available source, the risk appraiser decides whether or not the applicant should receive the insurance he or she applied for. If the appraiser cannot issue said insurance policy, he has two choices. He may decline the application and offer a policy at an increased rate, or he may offer a different plan. For example, companies usually offer whole life insurance policies or endowment life insurance policies to applicants who do not qualify for the term life insurance policy they applied for (due to health issues, or other concerns)

The other option is to decline the application all together. With some applications, the risk appraiser has no other option. However, the risk appraiser usually views his job as a process of qualifying applicants for some kind of insurance, if possible, rather than decline them when standards established for the certain policy applied are not met. Thus, the majority of applications for life insurance – more than 95 percent – will be accepted on some basis.

Now, after understanding the life insurance risk appraisal process, you should be further equipped to make an educated life insurance purchase.  Before applying for life insurance, ask yourself what type of life insurance you want and how much coverage you need.  After consulting with a financial adviser and your family members, it’s time to shop around for affordable life insurance coverage.  Enter your zip code at the top of this page to get quotes from multiple life insurance providers who will all be fighting for your business.


  1. After an application goes into underwritting what percentage will be approved on average?
    What on average is the percentage for whole life final expense life insurance and what is it for regular whole life insurance? I understand it might vary per company.

    Thank you!

    1. Hi Victor, life insurance companies do not release this data publicly as far as I am aware. In general, it does not matter which type of life insurance you are applying for in terms of the policy being accepted or denied. Life insurance companies may adjust the health rating and the policy cost may or may not be acceptable to the applicant. Life insurance companies ultimately accept the majority of people. With final expense insurance, life insurance companies are generally willing to take on a bit more risk, because of the low face amounts of these types of policies. So people in worse health may be accepted, but the majority of people applying are in poor health. If you are wondering if you have a higher chance of being approved for final expense or whole life insurance, you have better odds of being approved for a final expense policy.

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