Every insurance company has their own underwriting and actuarial departments with their own formulas and data to tell them who is and isn’t a good “risk” to take on when it comes to issuing a life insurance policy. These formulas and data sets also help the companies determine how much to charge and what amounts of life insurance to provide over what periods of time. It’s a very interesting and fascinating process if you like statistics, data, and that type of science. If you are like most people, you probably don’t care a whole lot about the process.
I am telling you this so that you will understand that the process and underwriting requirements I am going to mention here are an overview and not the exact process because it will vary depending on the company and product you choose and even the amount of insurance you are wanting.
So you decide it’s time (or more likely past time) to get yourself or someone you love some life insurance. You’ve read my post No Matter Who You Are, No Matter Where You Live, There Is Only One Universal Guarantee, YOU WILL DIE! about the importance of life insurance for everyone and my post You Know You Need Life Insurance but Don’t Know What To Buy about the basic types of policies available. Perhaps you’ve even read other pieces online or heard someone talk about the concepts before. Now you want to get an idea of what will be asked of you in order to make this concept a reality.
Hopefully you have already done this but the first step is to do some research about life insurance and what is available. Have an understanding of why it’s important, what it does and does not do, and figure out what your specific goals are. If you are working the financial frog process you may already understand most of these things and hopefully you are looking at life insurance as a tool to reach your financial goals as well as something valuable to have in place for your loved ones.
Come up with an idea of your financial needs pertaining to life insurance. Think of financial obligations you currently have and ones you expect to have. Here’s a Life Insurance Needs Worksheet that can help you determine your needs. There are a lot of different ways to calculate your life insurance needs and there are plenty of online tools that can help as well. In the end it’s important that you have discussed your whole financial plan with someone qualified to have that discussion and guide you. This is generally not an insurance agent because they are qualified only to sell insurance products, not to help you with a financial plan and there’s the concern about conflict of interest as they are going to be making money or losing money based on your decisions. In this step I would also suggest thinking about whether each need is permanent or temporary because temporary coverage (term insurance) can be used for those needs and permanent coverage (cash value insurance) can be used for those needs.
Determine some possible companies you might want to work with for your life insurance needs. Consider that there are your major insurance companies that focus on what we call personal lines coverages (auto, home, recreational toys, etc) but also sell life insurance either directly through their company or using a partner company. These can sometimes offer discounts on your auto and home insurance for “bundling” the coverages but generally the discount for having a life insurance policy isn’t enough to justify using them just for that reason. There are also companies that focus primarily on life insurance and perhaps some other investment products. These companies can be good because it’s their primary focus and not an ancillary product offering for them. Still be careful and do your research. There are also companies that offer life insurance through FInancial Advisors that are really there to get you to let them manage your retirement and investment assets but will also offer life insurance because it can tie into retirement and investments. Generally these people know very little about life insurance and the companies they work with vary widely so tread cautiously. You might also want to look into companies that align with your personal beliefs and values. There are some companies that are not for profit fraternal organizations that either share a certain religious perspective or common bond through community service and engagement. It’s not a bad idea to get quotes from a few of each but make sure you can break down the quote to determine a true apples to apples comparison since each company will have their own spin on the product even if at its core it’s the same concept.
You’ve chosen the company and the licensed agent you want to proceed with and it’s time to start the underwriting process. This is where it is going to vary slightly from company to company but overall the process is similar. You are going to sit down with the agent and complete an application for insurance. The agent may ask you a whole lot of personal medical background information or they may have the option of letting those questions be asked at a later time by a medical professional that will be doing an exam on you. Either way there will be some questions you will have to go over with your agent pertaining to your life such as name, DOB, address, phone numbers, social security number, place of employment, type of employment, gender, tobacco use, driving record, questions about risky behaviors like skydiving, flying, etc, who your doctor is and their contact information, height, weight, and beneficiary information. Once they have all the information that the company requires they get from you, you will sign the application and depending on the state and amount of death benefit, they may collect a deposit of one month’s premium.
You will likely get a call from a 3rd party service that asks you a lot of the same questions that you were asked by your agent. They are verifying the information and making sure the answers the agent put down are the same as what you are saying now. They may ask additional questions if necessary. You will likely get another call from a different 3rd party service to schedule your medical exam. This is usually referred to as a paramed exam. They will likely draw blood, collect a urine sample, weight you, and ask you more detailed medical history questions. Most services are willing to come to your home or place of employment to do this exam at your convenience and it generally takes 15 to 30 minutes depending on how complex your medical history is. The examiner will then send the results back to the insurance company’s underwriting department for review.
During the time of underwriting, they are also requesting statements from any medical doctors that have treated you recently and depending on what the doctor puts in the statement, they may go back and ask for more physician statements before making a determination on the application.
Occasionally something will come up that will require additional forms to be signed or statements from you to be submitted before underwriting will finish their process. These usually come up if there’s conflicting information in your medical history or if you are asking for high levels of death benefit for your policy.
Underwriting makes a decision on your application and sends your agent an offer of insurance. Sometimes it is for a different amount of death benefit or different premium that originally quoted because of information that came up in the underwriting process. This can be good or bad. If your agent is any good, they should have quoted you the company’s standard rate for the amount of death benefit you requested. If health issue come up the company can decide not to offer insurance at all or to charge a higher rate which is generally referred to as being rated or getting rated. If your height and weight are within certain parameters and you don’t have any health issues, you might come back with a better price for your premium which is generally referred to as preferred or super preferred.
At this time you have the ability to decline the offer completely, take a different amount of death benefit, or accept their offer. In some cases you can even increase your death benefit but that would be up to the company and how they break down their underwriting requirements.
Once you make your decision and sign the acceptance or refusal, you will be expected to make the agreed upon payments for the agreed upon time frame and you now how life insurance.
Keep in mind that different companies view certain health issues differently. Most companies agree that someone with a history of cancer is uninsurable and won’t take on that risk, but if you look hard enough you may find a company that will. As far as mental illness or common ongoing health concerns like diabetes, thyroid issues, and so on, one company may consider that uninsurable and another will just rate extra for someone with it. So if you don’t like the result of the first company you try, you can try again with others. I will warn you that many life insurance applications ask if you have ever been denied or rated on previous policies with other companies and you will have to disclose that but it doesn’t mean the new company will make the same decision.
Another thing to note is don’t attempt to mislead, lie, or fail to disclose pertinent information because there is a period of time referred to ask the look back period where the company can decide to cancel your policy or if a death claim is made and they have reason to believe false information was provided in the application process, they can deny the claim which would be devastating to your loved ones and you won’t be around to fix it.