Ever wonder how insurance companies review your application — and how they come up with the amount you pay for your premiums? It’s all about risk. Before an insurance company can accept your application for coverage, they need to determine what level of risk you present to the company’s business. This process is called underwriting. Professional underwriters review the criteria on your application to see if it’s possible to offer you a policy and if so, how much coverage you’re eligible for and what you’ll pay in premiums.

(Fun fact: the word “underwriting” originated centuries ago with British insurer Lloyd’s of London, when bankers would literally write their name under the risk assessment for an undertaking such as a sea voyage.)

There are several factors that are considered during the underwriting process:

Medical questions and exams

Your age and health status are the most important factors in determining insurability as well as the amount you pay for life insurance. Health status is assessed either through a physical exam, answers to questions about your health and medical history, or a combination of those things. You might be surprised to learn some of the ways your health is evaluated. For example, the use of certain medications for preexisting conditions may make you a higher risk.

It’s important to be honest when self-reporting the answers to medical questions, as false statements can result in penalties and problems when benefits are to be paid.

Other factors used to determine your rate

Health considerations play the most significant role in the underwriting process, but other factors may come into play, depending on things like your age and amount of coverage requested. These include:

• Family health history
• Credit history
• Motor vehicle records
• Your lifestyle, including adventurous hobbies
• Prescription history
• Occupation
• Tobacco useImmigration status

Once the insurer has collected and verified your information, it is put into a data model to determine whether they can offer you a policy, how much coverage you qualify for, and how much you will pay for insurance.