Plain version: the application is the insurer's main underwriting document. It must be completed accurately and truthfully to the best of the agent's ability. Basic underwriting requirements, such as which exams or financial documents are needed at a given benefit level, vary by company; there is no single uniform set.
When an application reveals a health condition or another risk, the insurer may ask for more:
MIB Inc. (formerly Medical Information Bureau) report: MIB is a consumer reporting agency whose database is maintained by member companies. With the applicant's authorization, a member compares the file with the application and investigates any discrepancy; it cannot base a decision on the file without further investigation. Consumers can get a free copy once a year.
Attending Physician's Statement (APS): from the treating doctor, explaining a condition or workup.
Credit and/or inspection report, and a DMV report (driving history).
Hazardous activity questionnaire: details of aviation, scuba diving, or auto, boat or motorcycle racing.
Additional medical testing: for example an EKG, a treadmill test or a physician examination.
Underwriting outcomes: the insurer issues as applied, issues with modified terms (extra premium, exclusion rider or reduced terms), or declines.
Insurer: keeps the risk properly priced.
Insured: gets coverage, possibly at a higher cost or with a limit.
Agent: explains the decision and any change to the client.
Under California's Insurance Information and Privacy Protection Act, when an insurer declines an individual life, health or disability application, it must give the specific reason in writing at the time of the decision. A separate right, with a 90-business-day window, lets the applicant ask for the specific items of information behind it.
Rate-making components:
Morbidity: how often sickness and injury occur in a group. It drives disability claims the way mortality (the death rate) drives life claims.
Insurer expenses: add to the rate.
Investment return: reduces the rate.
Benefit duration: a longer benefit period costs more.
Probationary period: runs once, from the policy's start, and screens out sicknesses that begin right away.
Elimination period: a waiting period that starts with each disability. A longer elimination period lowers the premium.