Is there a difference when underwriting permanent insurance vs term insurance?
I often get asked if there is a difference between permanent insurance underwriting and term insurance underwriting. The answer to that is No, and Yes.
If you are asking if there are two different underwriting manuals, one for permanent and one for term, the answer is no.
When initially assessing the case, the underwriter is going to use the same manual, the same guidelines, the same rating regardless of what type of product is being underwritten. So, if the history warrants a Table 4, then the underwriter will assess at that Table 4.
A couple of scenarios where the answer may be yes are Table Shave programs (there are only a few carriers these days that still have Table Shave programs) and when it comes to “stretching” an offer.
Table Shave Programs
Table Shave programs are pretty straightforward (a case that is Table 2 or Table 3 can automatically qualify for Standard at certain ages and amounts) but is only available for permanent products. So that is one example of how there could be a difference. But again, only a few carriers have Table Shave programs at this time.
Exceptions on permanent vs term insurance underwriting
The second scenario is a bit more subjective. An underwriter may be willing to “stretch” a bit and be a little more aggressive on permanent products than term. One reason it is tougher for an underwriter to be aggressive on term is that the profit margins are so razor thin that any one table exception could be a difference in profitability. A second reason is that most term products have treaties that are reinsured from the first dollar. This means that the carrier’s reinsurers share the risk starting with the first dollar of the policy face amount. As the reinsurers expect their client carriers to follow their guidelines to the letter, an underwriter’s hands are somewhat tied as there could be ramifications from their reinsurers.
In summary, for the most part, permanent and term products are underwritten the same. But if you are looking for getting Standard via a Table Shave program, a permanent product would be required. If you are looking for an “exception” or a “stretch”, the chance of getting that exception are significantly increased with permanent products.