[Life Insurance 101 Series: This series features IMPACT posts that detail the breadth of the industry’s reach and benefits provided to consumers.]
Congratulations to women’s soccer superstar Alex Morgan. She and her husband announced in October they are expecting a daughter.
Like most soon-to-be parents, it probably won’t be long before Alex thinks about life and disability income insurance. She has enormous income potential. She will want to make sure that in the event something unexpected occurs preventing her from earning money, her family will have the financial resources it needs long into the future.
Alex and other soon-to-be moms and dads – and current parents too, among many others – undergo a process called underwriting when seeking coverage. In the insurance context, that means deciding how much to charge an applicant for a policy based on his or her likelihood to make a claim. Underwriting is about an insurer balancing a policyholder’s premium and the likelihood he or she will make a claim.
Many factors go into underwriting – age, sex, health and medical history, family medical history, hobbies and smoking status are some. A young, healthy person like Alex will pay less for coverage than a 50-year old smoker.
By setting a cost based on the timing and likelihood of paying benefits, life insurance companies can guarantee their promises. This might be a day after the policy is issued or years in the future.
The system’s success is based on the applicant and insurance company sharing information – being on the “same page.” Alex wouldn’t (of course, she couldn’t) hide the fact that she’s a competitive, elite athlete. With good information about applicants, plus years of experience and data to base their calculations, insurers are good at figuring out when and how often claims for coverage will be made.
This provides most adults the ability to protect their loved ones at every stage of life, no matter what unexpected event might occur.
It is why coverage is available and affordable for people of all economic levels – for stars like Alex and soccer moms and dads with bills to pay and education expenses in the future.
Up next in this series of posts: Life insurance and health insurance: What’s the difference?