As a financial advisor, one of things that I have found to be of the greatest benefit to my clients is making the whole planning process as frictionless as possible. Unfortunately, this is often an uphill battle since many of the systems and processes available to us are outdated and in need of some modernization. In no area of financial services is this more evident than insurance! I am often frustrated by the hoops my clients are made to jump through when applying for new life insurance policies. That said, the systems and processes in place have improved since I started in the industry and, even, in the last few years. Because helping clients through the process of buying life insurance is a fairly regular occurrence, I wanted to use this week’s blog post to outline what that process looks like.
Quotes
When purchasing life insurance, the process should always start with getting quotes from multiple insurance companies. In order to do this properly, you will need to know what kind of life insurance you are looking to purchase, how much coverage you need, and for how long you will need the coverage. For example, you may decide to run a quote for a Term (temporary) policy, for $500,000 in coverage, for 30 years. Additionally, you will need to select a “rating” to quote yourself at. These ratings are based on your current health and risk factors that could shorten your life span. The most common, health concern for insurers is tobacco use. I have personally seen the cost of a life insurance policy triple due to the client’s use of tobacco! Every individual applying for coverage starts at a Standard rating and moving up or down depending on their health (and sometimes risky hobbies or occupations). The best way to make sure you are getting an accurate quote is to work with a licensed insurance professional who can help you determine what type and how much coverage you should have in place.
Application
Now that you have your quote its time to complete your application! As I mentioned before, technology in the insurance industry has improved over the last few years and drastically improved since I started in financial services almost 10 years ago! At this point in time most life insurance applications be completed entirely electronically. Typically, there is no need to fill out, sign, and mail in paper applications any longer. All life insurance carriers are different, but the process of completing the application usually goes a little something like this: 1) The insurance professional starts the new application online, 2) you receive an email and/or phone call to answer additional questions and to sign the application, and 3) the completed application is sent to the insurance company for processing. By and large the whole process of completing the application is relatively easy.
Medical Underwriting
This is where the process can get hung up. Generally speaking, there are three things that can happen relating to your health once you submit your life insurance application. If you are relatively young, are applying for a smaller coverage amount, and upon first glance do not have any major medical issues there is a good chance that, that will be the extent of your medical review. However, a large percentage of people who apply for life insurance are required to complete what is called a para-med exam. This usually consists of a medical professional checking your vitals and taking a blood and urine sample. If required, the insurance company will order this exam with one of their providers at no cost to you. Usually, you have the option of going to a lab or having a medical professional come to you (I have personally had an examiner come right to my office!) While the necessity of these para-med exams seems to be going down it is still worth noting that you may be subject to this requirement.
Lastly, if you are required to undergo a para-med exam and the insurance company still has questions, they may request additional information from your doctor. Specifically, they may ask for an Attending Physician’s Statement or APS. Thankfully, this doesn’t happen often but when it does, it can really slow down the process. It is recommended that you reach out to your primary care physician to let them know that the insurance company is requesting an APS. This will, hopefully, move the process along.
Offer or Decline
Finally! Once the insurance company has had a chance to review your application and medical information you will receive either an offer for coverage or a decline. When an insurance company offers you coverage, one of two things will be true. Either you will be offered the exact coverage that you applied for or the offer will contain some adjustments. Specifically, changes are sometimes made in the rating that you are offered vs the one that you applied for. In that case you may be offered either a better rating or a worse rating than you were hoping for based on the information that was provided to the insurance company. This of course results in the cost of your new insurance policy being either more or less than you were expecting (hopefully less!)
It is important to note that an offer for coverage is just that, an offer. You are not required to take the offer and begin paying the premium. In fact, even after accepting the policy and paying the first premium you still have a 30 day “free-look” period to decide if you actually want the policy or not. If not, you can receive a refund of your premium. Actually, the interesting thing about insurance policies is that the contract is only binding to the insurance company. As long as you pay the premium, they are required to provide you with coverage. However, you are able to stop paying the premium and get out of the contract at any time.
The last thing to note is that occasionally an application for life insurance is denied by the carrier. This can happen if the client has a terminal illness, unresolved medical issue, or other concerning medical problems. Oftentimes a decline for coverage is more of an “not now” than it is a “never”. Sometimes a carrier simply wants to see that you have recovered from an illness or received the results of a test that your physician recommended that you undergo. Still other times you may need to wait a couple of years to revisit life insurance coverage.
I hope that this week’s post gave you a good understanding of the process of obtaining life insurance coverage for you and your family. If you have any specific questions about coverage for your situation please reach out and we would be happy to help!
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