If you’re like me, underwriting can conjure up images of documents where secret messages are written with invisible ink… but not much else. For those who are confused by all the terms used when looking for health insurance, I did some research. Let me help you understand it.
Application. You provide the insurance company with a lot of information about you and your family’s health. They will ask questions about your medical history, current health, marital status, and any high-risk activities that you may be involved in. This information is used by the insurance company to assess risk.
What’s the risk? You could have a heart attack or slip on a banana peel, causing a broken hip bone. Every person is vulnerable to an innumerable number of risk factors. Not everyone is equally susceptible to all risks. If you have a family history of heart disease, your chances of getting a heart attack are higher than the average. If you live in Siberia, far from all banana trees, your risk of sustaining a hip injury by slipping on a banana peeled banana peel is much lower.
Why do they have to assess risk? A business is health insurance. Underwriting agents must determine your health risks in order to keep the company afloat. They then assess your financial situation and decide if it’s financially feasible to accept you as their client. If you are a banana factory worker in India and eat bananas every meal, and have a tendency to be klutzy, it may not be in the best interests of insurance companies to insure against you falling on a banana peel. They may decline to approve your application.
Imagine that you work in a banana plant but don’t see bananas outside of work. The insurance company may offer you coverage, but the agreement might contain an exception. It might be something like, “We will cover all hospital costs incurred due to you slipping on banana peels from outside the factory.” They might offer you insurance for banana peel slippage in all cases, but charge you a higher premium. In a moment, I’ll explain what premium is. In a moment, I will explain what premium means.
Premium. This is the monthly amount you pay to your insurance company. High risk individuals will have a higher premium. Lower risks will result in a lower premium. The cost of premiums is also part of underwriting. Insurance companies aim to charge premiums low enough that they are able to keep their customers happy and make a profit.
How does this help me? Once you understand how insurance companies underwrite, you can perform some risk assessment and underwriting on your own. You can determine which insurance companies will be best for you by working with an agent and/or doing your research. It is possible to assess your health risk and research the responses of specific insurance companies. You can also reduce your premiums by exercising, reducing high-risk activities and eating well.
You are now ready to shop for your health insurance plan. An excellent agent or broker should be able guide you through your health insurance risk assessment.