Buying life insurance is an essential financial decision that can provide peace of mind and security for your loved ones. However, applying for life coverage can seem overwhelming and complex. From providing personal and medical information to choosing the right type and amount of coverage, there are many factors you must consider.
In this blog post, we’ll examine the life insurance application process, including some of the questions asked and the factors that can affect your coverage and premiums. Whether you’re a first-time buyer or want to update your existing policy, this guide will help you understand the steps in obtaining life insurance and making informed decisions about your coverage.
Determining Your Insurance Coverage
Before downloading your policy application, consider your coverage needs. It’s the first step in the application process and requires serious evaluation.
Your investment in life coverage is only sound (and worth the spend) if you purchase adequate coverage to protect your family from financial hardship after your passing.
Here are some considerations for calculating the amount of coverage you need:
- Debt: Consider the amount of debt you have, including mortgages, car loans, and credit card balances. Your life insurance policy should be enough to cover these debts.
- Income replacement: Think about how much funds your family would need if you were no longer there to provide for them. Aiming for coverage 10-12 times your annual income is a good rule of thumb.
- Education expenses: If you have children, you may want to factor in the cost of their education when calculating your coverage needs. This reserve will help them avoid the burden of student loans after graduation.
- Final expenses: Funeral and burial costs can be high, so it’s necessary to assess these expenses when determining your coverage limits.
- Additional needs: Consider any supplemental needs your family may have, such as childcare or elder care.
Once you’ve calculated your coverage needs, you can choose the type of coverage that best meets your needs and budget. It’s always better to err on the side of more coverage rather than less, as this can provide additional peace of mind for you and your loved ones.
Completing this evaluation before the actual life insurance application will help streamline the entire process.
If you have current coverage, be prepared to answer questions about why you require another policy. Ask your agent beforehand if you want to switch from your current life insurance provider.
The Steps for Applying for Life Insurance
The steps for applying for coverage can vary depending on the insurance company and policy type you are applying for. However, here are some general steps you can expect when applying for life insurance.
Step #1: Research and compare policies before starting the life insurance application process.
Research different types of policies and compare premiums and benefits from multiple insurance companies to find the best option for your needs. Tackling this step is easier once you determine how much coverage you require based on your financial obligations and your family’s needs.
Here’s what you need to do next.
1. Understand the types of policies available: There are several types of life insurance policies, including term life, whole life, universal life, and variable life insurance. Each type of policy has its advantages and disadvantages, so it’s necessary to understand the features and benefits of each type of policy.
>> Learn about the categories of life insurance available, who they’re for, and how they can work for you in this blog post.
2. Research insurance companies: Look for companies with a good reputation for financial stability and customer service. Independent rating services such as A.M. Best and J.D. Power can provide ratings and reviews of insurance companies.
Choose a financial partner you can trust for the long haul, who is financially stable, and will be about to fulfill their obligation of paying out your policy claim.
3. Compare premiums: Once you’ve identified a few insurers that offer the type of policy you need, compare premiums for similar coverage amounts and terms. Ask for a free quote to estimate how much you’ll pay in premium payments. The insurer will conduct a ‘soft check’ of your credit history, but it shouldn’t affect your credit score.
Your credit report affects whether you receive a favorable decision for the lowest rate.
4. Understand policy features and benefits: Look at the features and benefits of each policy, such as riders, cash value accumulation, and payment options, to determine which best meets your needs.
>> Learn about popular insurance riders like accidental death benefit riders and how they help bolster your policy protection in this post.
5. Read the fine print: Carefully review the terms and conditions of each policy, including any exclusions or limitations on coverage. The last thing your family needs is a nasty surprise later that prevents them from receiving the death benefit payment.
6. Ask questions: Don’t hesitate to ask questions of the insurance company or agent to clarify any information or concerns you may have. Choose another provider if they refuse to answer your questions or approach them roundaboutly. You also want an experienced life insurance agent to help you navigate the process.
Transparency is vital when buying life insurance coverage. Only sign the contract after understanding what exactly you’re paying for.
By taking these steps, you can find an insurance company that offers that type of policy and has a good reputation for customer service and financial stability. The company’s standing assures that your loved ones will receive protection after your unexpected death.
Step #2: Complete an application.
Fill out the life insurance application with accurate and honest information about your personal and medical history. Some insurance companies may require a medical exam as part of the application process. Provide accurate information during this step to avoid the denial of benefits for your beneficiaries.
Your insurer will ask two types of questions: non-medical inquiries into your financials and health-related questions.
Non-Medical Questions
- General questions will cover your basic information, like your date of birth, marital status, and occupation. Your occupation factors into your risk assessment, as the higher the dangers of your job, the higher the chances of a death claim.
- Your driving record matters in your risk assessment as well. The underwriter will use this information to estimate your ‘risk of death’ during the policy period. Your life expectancy matters to insurers.
- Your financial situation is also under evaluation. The insurer will require information about your annual income, assets, and net worth. You’ll have to provide evidence to support the submitted details, as the company wants assurances that you can pay your premium on time and in full.
- Naming a life insurance beneficiary or multiple beneficiaries with their share of the benefits. For example, you may assign 60% to your spouse and 40% to your mother. If the primary beneficiary dies before you, you’ll have to revise this section of your policy.
- They may also ask about your desired bill period. Common choices are: monthly, quarterly, or annually.
Other questions they’ll ask include the following:
- Have you applied for life insurance before?
- Have you ever been declined for life insurance?
- Do you have any current life insurance coverage?
Medical and Lifestyle Questions
- Risky activities and dangerous hobbies like skydiving, rock climbing, and scuba diving act in the same way as your occupation. They increase the chances of your family filing a claim.
- The insurance company will ask about prior criminal convictions, a suspended driver’s license, DUI, or past moving violations. Find out the dates, as insurers generally focus on events within a particular time frame, usually the last five years.
- Your personal health history is a predominant part of the insurer’s evaluation of your risk classification during underwriting. Be honest about your pre-existing medical conditions. The company will cross-reference your information with the MIB Group, which maintains a database of health conditions reports collected from life and health insurance companies in one place.
- Insurers will ask about your family health history, particularly if your parents or siblings have had heart disease, kidney disease, stroke, diabetes, cancer, or other health conditions. Note their age when they were first diagnosed or treated and their age at death if they have passed away. Insurers are mainly interested in diseases that occur at an early age, usually before 60 or 65. Earlier onset diseases raise red flags for insurers.
- As with risky hobbies, habitual smoking increases the chance of death and a claim for death benefits by your beneficiary. Insurers will ask about your nicotine use.
- The company will ask about your previous use of illegal drugs, current alcohol consumption, prescription medications, and whether you received a recommendation for addiction treatment. If you take prescription drugs, include the complete name of the medication and the dosage and frequency.
Honesty Is Always the Best Policy
According to a Coalition Against Insurance Fraud report, insurance fraud costs the United States an estimated $80 billion annually. These fraud instances include fraudulent property, casualty, and health and life insurance claims. These fraudulent claims cost insurance companies money and contribute to higher premiums for honest policyholders.
To combat financial losses, insurers will double-check every scrap of information you submit—driving, medical, and prescription drug records.
Contestability Period
Expanding further on the point, insurers benefit from a contestability period.
A life insurance contestability period is a specific timeframe during which an insurance company can contest or investigate a claim made by the beneficiary of a life insurance policy. This period typically lasts two years from the date of the policy’s issuance, during which the insurer can investigate any misrepresentations or omissions made by the insured person on their policy application.
If the insurer finds evidence of fraud, misrepresentation, or other material misstatements on the application, they can deny the claim or adjust the benefits accordingly. This is because the insurer relies on the information provided by the applicant to determine the premium rates and risks involved in underwriting the policy.
It’s important to note that after the contestability period expires, the insurer can generally not challenge the policy’s validity or the beneficiary’s claim, except in cases of fraud or intentional wrongdoing.
Once you sign on the line of any forms you fill out, you’re pledging that the information you submit is honest, accurate, and up to date. Therefore, it’s crucial to be truthful and precise when filling out a life insurance application to avoid complications during the contestability period.
Pro Tip: While applying for coverage, grab a claim form. This is helpful for your beneficiary to learn about the process if they have to file for a death benefit payout. We’ll discuss the process of filing for an insurance claim in another post.
Step #3: Undergo a medical exam.
As part of their verification process, insurers require applicants to take a life insurance medical exam. The insurance company pays for the exam, and a paramedical examiner will contact you to schedule it at a convenient time and location, such as your home in the morning.
The technician will measure your weight and height during the exam and take urine and blood samples. They’ll also review your medical questions. They may also conduct additional blood pressure measurements, electrocardiograms, or treadmill stress tests to assess your heart health.
Have documents with details about your medical conditions and prescription medications on hand for reference.
Some life insurance policies (simplified and guaranteed issue life insurance) don’t require a medical exam but may charge higher premiums.
>> Learn more about paramedical exams, how to prepare for one, and what to do if you fail in this post.
Step #4: Wait for underwriting.
Once you’ve submitted your application, the insurance company will review your application and medical history to determine your insurability and premium rates. Here’s the simplified version of what underwriting entails.
Underwriting Simplified
Life insurance underwriting is the process of estimating an individual’s risk level to the insurance company. The underwriter assesses the information provided by the applicant in their application form, such as their age, medical records, and lifestyle habits, to determine the likelihood of the individual making a claim.
This evaluation helps the insurance company determine the appropriate premium to charge for the policy and the level of coverage they are willing to provide.
Underwriting is a crucial step in the life insurance application process and ensures that the insurance company can remain financially stable while protecting its policyholders.
Once the underwriter completes their evaluation, you’ll receive the final decision. The insurance company will approve or deny your application or offer coverage with specific conditions or exclusions.
The average underwriting time is about four to eight weeks, depending on if there are any follow-up questions or requests for additional documentation.
>> Learn more about the underwriting standards, the process, and how it affects you in this post.
Step #5: Sign the policy and make premium payments.
If your application is approved, you must sign the policy and make premium payments to activate your coverage. Be sure to carefully review your policy and ask any questions you have before signing the final policy and making premium payments.
Keep paying your premiums on time to maintain your active life insurance coverage.
Conclusion
The life insurance application process may seem daunting, but it’s an essential step toward guaranteeing the financial future of your loved ones. By understanding the information required and preparing yourself accordingly, you can make the process smoother and improve your chances of getting the coverage you need at a price you can afford.
- Research and compare policies for affordable rates.
- Complete your application and any additional forms required. Answer truthfully about current health and family health risks. Include your beneficiary details, and update this section if there are any changes later.
- Show up on time and prepared for your medical. The medical professional who performs your exam will ask you a series of questions to verify what’s only your application. Insurers are searching for chronic diseases that significantly shorten your life expectancy.
- Wait for a response from the underwriting. The entire underwriting process can take up to eight weeks unless asked for supplemental medical records.
- Once the underwriter finishes the evaluation of your application for life insurance, you’ll receive notice of denial or approval. Signing the contract and paying your first premium seals the deal.
Be honest and accurate in your application, as misrepresentations can result in a denied claim. Lastly, don’t hesitate to ask questions and seek guidance from a licensed insurance agent or financial advisor to ensure you make informed decisions that align with your needs and goals. You can protect your family’s future and achieve peace of mind with the right approach.
