Preferred & Standard Underwriting Guide

Underwriting Guide (PDF 100KB)
Underwriting Table (PDF 5KB)
Medical Testing page

Four Rate-Class System
How do we identify the better risks? With a unique "debit and credit" system. With a traditional company, a single negative factor can disqualify a client for a preferred rate. Under our system, that single factor can be "neutralized" by positive factors.

Here are some examples of class 1 issues. The highlighted factors might have disqualified these clients for the best preferred rates from other companies. CNA was able to consider their whole profile and strike a favorable balance.

	Class 1 Client No. 1	Class 1 Client No. 2	Class 1 Client No. 3
Age/sex	58/Male	51/Male	45/Male
Height/ weight	5'9"/160	5'9"/160	5'9"/160
Blood pressure	112/72	120/80	150/96
Pulse	76	70	80
Cholesterol	275	221	206
Chol/HDL ratio	8.0	4	5.3
Trigly- cerides	264	131	169
Father	Living, age 78	Living, age 83	Deceased at 42 of accident
Mother	Living, age 78	Living, age 85	Living, age 70
Tobacco use	Never used	Quit 1970	Never used
Other factors	Exercises 4X week Has annual physical Makes $100,000	Exercises 3X week Has annual physical Makes $90,000	Exercises 5X week Has annual physical Makes $200,000

Our guideline blood pressure and build charts for preferred are different from other companies'. The examples above show that, if balanced by other factors high blood pressure readings and heavy builds won't necessarily disqualify a client for a preferred rate.

Underwriting Classes: Four Rate

• Preferred non-tobacco user – applicants who have not used tobacco in any form in the past 2 years and meet the "preferred" criteria requirements for this class.
• Standard non-tobacco user – applicants who have not used tobacco in any form in the past 12 months and do not meet the "preferred" criteria. This class is the basis for calculating the non-tobacco user classes. "No tobacco use" includes no nicotine in the urine sample.
• Preferred tobacco user – applicants who use tobacco in any form (Cigarettes smoked cannot exceed one pack daily) and meet the "preferred" criteria for this class.
• Standard tobacco user – applicants who do not qualify for any of the other classes. This class is the basis for calculating the substandard risks for the tobacco user classes.
  

How Do You Pick a Class When You're Quoting in the Field?

The old benchmarks, along with your experience and common sense, will help you broadly classify a client as preferred, standard, or tobacco user.

The old benchmarks, along with your experience and common sense, will help you broadly classify a client as preferred (Class 1), Standard (Class 2) or tobacco user (Classes 3 and 4). Beyond that, we believe it's most prudent to show the client more than one option. If your client is the picture of health, hasn't smoked in 10 years or been sick since grade school, reports low cholesterol and target-range blood pressure, exercises three times a week, has a sterling driving record, a good job and healthy parents in their late 80s, you might still want to show him the rates for class 1 and class 2, to be on the safe side.

Special Notes on Tobacco Users
The use of tobacco in any form - cigarette smoking, cigar smoking, tobacco chewing or the use of snuff - will place the client in one of our tobacco user classes. If the lab report shows nicotine in the urine, the underwriter will automatically assign a class 3 or 4.

Misrepresentations in answers to our smoking/tobacco use questions on the application will evoke a strong response from CNA. The policy may be rescinded, or we may decline benefits if a claim is made within the contestable period.

How to Submit a Case to CILC
(Completing the Application)

If the application isn't completed fully, accurately and legibly, the most sophisticated underwriting system in the world will be useless. It is important that each question on the application be answered fully and in ink. The signature must also be in ink. Typewritten applications with signatures are acceptable. The applicant must initial any corrections or alterations.

If the applicant is not the proposed insured, indicate his or her relationship to the proposed insured. If the policy is owned by a corporation, indicate what the applicant's title is.

Questionnaires

Additional underwriting questionnaires should be completed and submitted if the client’s statements on the application relate to these medical conditions or avocations:

Medical questionnaires:

• Alcohol use
• Diabetes
• Drug use
• Psychiatric history

Avocation questionnaires:

• Aviation (plane, glider, balloon, lighter-than-air, etc.)
• Hazardous sports (car racing, scuba or skin diving, sky diving, hang gliding, etc.)
• Travel

Underwriting Table (pdf 4.43 KB)

The financial questionnaire should be completed and submitted if the client is applying for $1,000,000 or more of coverage. Financial underwriting is very important for over age 70 applicants for all amounts. A cover letter describing the amount of coverage requested and how you arrived at that amount should accompany all cases. NOTE: If inspection or other information provided does not clarify financial justification, the questionnaire may be required for amounts $1,000,000 and below.

NOTE: If inspection or other information provided does not clarify financial justification, the questionnaire may be required for amounts $1,000,000 and below.

Authorization and Notice to Proposed Insured

Underwriting evaluation requirements such as attending physician statements (APS), medical and paramedical examinations, laboratory tests (blood and urine), EKGs and inspection reports are among the many requirements may be ordered to evaluate a risk. Ordering early and properly can save much time and expense. You must have a copy of the Authorization to Obtain Information signed by the applicant before ordering requirements.

Good field underwriting will help support CNA's continual commitment to guard the privacy rights of our clients, the confidentiality of all information secured, and the legality of the insurance contract issued.

Large cases ($500,000 and up)
Unusual risks or circumstances require a cover letter of explanation. The financial questionnaire is recommended but not required for amounts $1,000,000 or less.

Comprehensive Cover Memo

General
A comprehensive cover memo is especially important for the difficult to evaluate, impaired risk, or financially questionable case. A memo should be sent any time the broker recognizes the need for special handling or clarification of information. The application is good, but cannot cover all necessary aspects. A logical presentation of the case to CNA is important. It ensures that the underwriter understands the applicant's needs and the broker's presentation in response to those needs.

Financial
Our goal is to provide brokers with underwriting decisions that are competitive, timely, and require only that information necessary to evaluate the risk and make a competitive offer.

Just stating that the applicant needs coverage is not sufficient. What method was used to determine the amount applied for? Including elements of the case design will help the underwriter understand the applicant's circumstances.

Exceptional circumstances will support exceptional decisions, but documentation is essential, and the coverage must make sense.

The following are general guidelines for some of the more common purposes for life insurance. Final judgment remains with the underwriter working directly with you.

Personal coverage (multiples of annual earned income)

Note: Underwriters will question if over 10X and looks speculative.

Key person coverage (multiples of annual earned income)
Usually 5X income is considered a reasonable amount. Under some circumstances up to 10X income may be justified. A cover letter should explain need and how it is justified.

Estate and tax planning
Look at the total picture including asset mix, prior growth rates and income sources of the insured to determine estate settlement costs. A growth factor of up to 5% per year can be used to project future estate settlement costs. The maximum future projection period is as follows:

Business purchase
Insurance will be limited to a reasonable appraised value of the proposed insured's proportional share of the business.

A cover memo describing the ownership details, valuation method used, etc. is critical. In addition, the financial questionnaire can always be used and contains information needed to evaluate these type of risks.