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By Jim Tobin, CFP ®
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If your are currently in the market for life insurance, or simply need to research the life insurance application process, you have landed in a good place. This article will take you step by step through the process and provide links for in depth discussions on each step taken. You can easily skip around using the quick navigation links above.
The next thought, once you come to the inescapable conclusion that people you care about are reliant on you, is often "I need life insurance". This thought is often immediately followed by 'I hope it's not too expensive".
If these thoughts have run through your head, know that you are not alone in fact you deserve some credit for doing the right thing. All too often, tragic accidents are compounded by a family left in dire circumstances.
"Choosing terms" is life insurance speak for deciding how much insurance you need and for how long. As a Certified Financial Planner, I have played with some pretty complicated formulas to get the answer, but have always come back to the simple L.I.F.E. formula, it provides a straight forward analysis of your needs.
This formula, discussed in more detail in the link above, simply takes outstanding loans and adds that number to your income multiplied by the number of years until retirement. This number is then added to the cost of any known future expenses, including college costs if applicable.
The total is your gross need, from which you can subtract liquid savings, 70% percent of retirement funds and any in force life insurance that is personally owned.*
* I do not recommend using any group life insurance through your employer in the initial calculation, as there is no guarantee that your next employer will offer coverage.
Once you have decided on the terms, the next step in the life insurance process is to see what it will cost. This can be simple or it can be a landmine.
The quoters on this, and site are all accurate to the penny for the underwriting class chosen. The tricky part is if you are not confident where you will end up on the underwriting grade.
If you are lucky enough to be in great shape, you can look at preferred or even preferred plus rates. However, if you have serious health concerns due to pre-existing health conditions , you may be better off filling out the customized life insurance quote form on the site.
For the purpose of this article, we are going to assume you are in good shape. this makes the process of getting pricing pretty simple. just enter your age, term length, amount of insurance and estimated underwriting class, then hit "Display Quotes".
If you find that the amount of insurance that your needs analysis came up with is beyond your budget, you can experiment with adding back any employer sponsored group life, and lowering the amount of insurance or the length of the term.
When you are comfortable with an insurance amount and term length, it's time to move on to step three.
The obvious easy answer is “the one with the best price”, and this answer is often the correct one. However, there are a few considerations that may affect that decision. Below, we will go over them point by point.
Much of this site is dedicated to teaching consumers that different life insurance carriers treat the same health condition differently. a such it's important to be aware of this when choosing a quote, because even moderate health concerns can affect rate. This is why speaking with an experienced independent advisor a is good decision.
One of the other issues that may be of concern to you when choosing a quote is the financial stability of the carrier. To this end, with rare exception, the Life Insurance Help Desk only works with "A" rated or better carriers. However, if you are curious about the financial health ratings of a specific carrier, just ask.
If you are interested in choosing a carrier that will not use a medical exam up to 500K or even 1MM of coverage, this is information that will not always show on the quote tool. This is because carriers are afraid of adverse selection or attracting clients who have a reason to avoid the exam.
So if you want to avoid having blood drawn or giving a urine sample, you need to tell your agent. Many top line carriers now offer 500K of term insurance with no medical exam. They will however, pull your medical records and prescription history.
Whether you are able to do a no exam policy or not, the underwriting turn times vary according to carrier. Sometimes this is simply about how busy they are, other times it reflects the culture at the carrier. In cases where it is imperative that the policy be in place a.s.a.p. (divorce, SBA loans), it may be worth paying a few dollars more a moth for a company with rapid underwriting.
Once you have decided on terms, received pricing, and chosen a carrier, you need to actually submit an application.
The actual application is filled out by your agent or staff that is associated with the agent. This process usually takes place over the telephone and takes about 15 minutes.
The specific information that will be needed for the application and follow up underwriting phone call will be :
Drivers Licence– You will need to provide your drivers license number on the application. This is required, as your driving history is part of the underwriting analysis.
Social Security Number- This acts as the unique identifier. The social security number is required on all applications.
List of prescription drugs being taken– This information will be asked during the application stage. However, it is always double checked, so be prepared. This will make the process faster.
Checking account number & routing number- This is necessary to bind a policy and choose the drafting day for your payment.
Beneficiary Information- Name and birth date of beneficiary (this can be changed after policy is issued).
When a policy is bound, the applicant will be covered from the day of the application , assuming the rating class paid for is agreed with by underwriting.
The application is then emailed to you for secure electronic signature(s) and you return them via email.
The next step in the life insurance application process is the medical exam. Now we have already discussed that several carriers will not require a medical exam up to a certain coverage amount, but in many cases you will need to take a medical exam in order to qualify for the best rates.
Lets take a look at what you need to know about life insurance para medical exams.
The exam will entail a nurse or para-med meeting with you to measure blood pressure, take blood and urine and use a portable scale to confirm your height and weight.
Para- medical exams are used by life insurance companies to help assess the risk that they are taking in insuring you. After all, the reason they want to get all in your business is, well, business.
The following list is some of the more common things that your para med will reveal.
Smoking– Your blood test will reveal any nicotine/cotine metabolites in your system. Be truthful about smoking on your application as it will come out anyway and you will be far less likely to catch a break on other issues if you are branded as untrustworthy.
Cholesterol- An important indicator of your heart health, you will be tested for LDL -low density lipoprotein (bad) , HDL- high density lipoprotein (good) cholesterol & the ratio of HDL/LDL. The lower the ratio, the lower the risk of heart disease.
Avoiding salty and fatty foods for 48-72 hrs. prior to testing is the best practice.
Blood Pressure– Blood Pressure is an important indicator of health. Coffee, alcohol, and excessive exertion will affect you readings. Abstaining for 24 hours is the best policy.
Elevated Liver Enzymes- elevated liver enzymes are often associated with excessive alcohol intake. However, certain elevated liver enzymes may point to bone or heart disease.
Avoiding liquor for 24 hrs. prior to testing is a worthwhile precaution.
Elevated Glucose & Triglyceride levels– These are indicators of pre diabetes. Avoid excessively sugary foods the evening prior to the exam.
Hemoglobin Excessive Protein or Creatine in Urine- These are all indicators of possible kidney disease.
You may take the exam at the place of your choosing. The para-med service will generally come to your home or place of work.
Most exams will take between 15 and 20 minutes (longer, if an EKG is required) .
There is no cost to the prospective insured. the costs of exams are a necessary expense to the carrier, as they need to know the risks they are taking.
If you are declined, or offered a policy you choose not to accept their is no charge. Regardless of whether you take the policy , you will be entitled to receive a copy of the report.
So, now that you know about what’s involved in a life insurance medical exam, you want to be able to “prep” for it as best you can.
While “living clean” for 2-3 days is not likely to materially improve your health rating, poor sleeping, eating and drinking choices can hurt you.
So, make sure that for the a couple of days leading up to the exam, you avoid salty, fatty foods and liquor. Additionally stay hydrated and get a good nights sleep the night before exam day.
Schedule your exam in the morning, skip your work out (to keep blood pressure level) and fast until you take the exam- that is no food or caffeine (water is okay).
Taking these steps will help to make sure you are at your best for testing.
Underwriting turn times are dependent on several factors ranging from the carrier, type of policy, the health of the applicant, and the amount of insurance requested.
Let’s take these issues one by one and you can determine if you are likely to be affected by delays.
The Life Insurance quote/company you choose– Due to volume, staffing and company culture some carriers simply do a better job of getting applications turned around. This is taken into account whenever The Life Insurance Help Desk makes a recommendation. There are times when a situation dictates that paying slightly more to a faster carrier makes sense. As always that decision rests with the client.
The Type of Insurance– This is less of a reference to term insurance v. permanent insurance as it is a reference to fully underwritten and non-med and simplified issue. Non-med or No Exam policies (without APS requested) are generally turned around in less than 72 hours. Because there is no medical exam the underwriters have less to evaluate. In these cases underwriting will look at your prescription history and your driving history. They will also conduct a detailed telephone interview and may request medical records based on the call. These policies are great fits for folks who have not been to the doctor in some time, need insurance fast for loan collateral, or just don’t like needles.
The Health of the Applicant– Applicants with greater health challenges often take much longer to complete a fully underwritten policy process. This is because a attending physicians statement (APS) will often be requested. An APS is a statement of your medical condition from your doctor. Doctor’s offices are notorious for ignoring these requests unless pushed by the actual applicant. If an APS is requested in your case, call the office yourself. You will be far more effective in getting action than the insurance company. After all, they are going to see you again.
The Amount of Insurance Requested - The reason the amount of insurance requested affects the turn around time is that over certain amounts second or even third sign offs are required within the underwriting department. That is, they don’t want a junior employee putting them on the hook for several million dollars. The amounts vary depending on the age of the applicant and the carrier involved. Anything over 2 million dollars and it’s a safe bet that another set of eyes will be looking at the application.
Simplified issue policies are often approved on the spot with a telephone interview with the applicant. These policies are generally for "final expense" policies allow for significant health issues in exchange for higher premiums. the face amounts or benefit from these policies are usually between 10000 and 50000 dollars.
All that remains in the life insurance application process are what are known as delivery requirements. This usually is limited to an electric signature. A check, if you did not submit payment with the application, and signatures on any amendments to the policy. This should take no more than a few minutes.
The big takeaways for the client are to familiarize themselves with the draft day for payment if paying monthly, and to store the policy in a safe place where it will be readily accessible in the event it is needed. It is a good practice to let a beneficiary know where to access the policy.
Although the home page of this site uses case studies for step 8, to demonstrate how you saved money by using this process, the real step 8 is to sit back and RELAX. You have gone through the life insurance application process in a manner that gives you the best opportunity to get the best deal for your unique circumstance. Congratulations!
Thank you for choosing the Life Insurance Help Desk to research the life application process for life insurance. Should you have any questions about the information in this article, or anything regarding life insurance, please do not hesitate to call or email.
Jim Tobin is the owner of Life Insurance Help Desk, a Fairfield County, CT. life insurance agency. You can find him on LinkedIn and Facebook. Over the past 10 years, Jim has used his CFP-financial planning designation to help individuals with their life insurance needs. In addition to working with life insurance clients, Jim teaches ESL classes in his spare time. He resides with his beautiful wife Nicole and the 3 cats that rule their lives..