The first step in purchasing life insurance is almost always the underwriting process. This is when the customer requests a policy and the insurance company assesses their eligibility. During this process, the future policy-holder is required to provide certain documentation and prove that there are no factors that make them ineligible for coverage, and the insurance company will take the precautions it deems necessary to underwrite the plan with the guarantee that the insured is not hiding any information that could pose a risk.
If you are going to purchase a life insurance policy, make sure you are fully aware of how this process works. In this article we will explain how to qualify for life insurance.
Life Insurance Underwriting Process: Article Contents
What Does “Qualification” Mean With Regard to Life Insurance?
When purchasing life insurance, whether it is a term or whole life policy, you are required to go through what is known as an underwriting process, during which the insurance company will determine whether you qualify for the policy. This means that you will have to prove you are eligible to receive coverage.
Qualifying involves the tests, interviews, evaluations, and other questions and exams that you will need to go through before the insurance company decides whether you are able to access life insurance. It is a difficult and often long and complicated process that can sometimes present serious difficulties in obtaining a life insurance policy. In fact, a recent study published by Financial Advisor reported that one third of US households cited the difficulty of purchasing life insurance as their reason for not having a policy in place..
In the face of these difficulties, the best thing you can do is educate yourself, carefully follow each step, and be patient. Most likely, if you provide the correct information and are honest throughout the process, the insurance company will end up offering you coverage. But it is important for you to be fully aware of what the process entails.
Remember that when the insurance company is evaluating your eligibility, they use the information you have provided to assess the risks it assumes by insuring you. These risks, in turn, determine the key elements to your policy, such as the monthly premiums you will pay and the maximum indemnity you are eligible to receive. As such, the underwriting process is of vital importance.
How Does the Underwriting Process Work?
Despite the difficulties we have already mentioned, and the fear many people have of paperwork and interviews, in reality the underwriting or qualification process is fairly simple.
It starts with your search for life insurance quotes so that you can find the best possible offer among the insurance companies in the market. After you have chosen a quote, you can then request the application from the company. And this is when the true qualification process begins.
For the application, you will be required to provide basic information, which is very important in determining the risks covering you represents for the insurance company. In general, companies request the following information:
- Gender. Your gender might seem irrelevant to your eligibility, but in fact, it is an important piece of information. In the Western world, women have a longer life expectancy than men, meaning that their risks are somewhat lower and that they pay a lower premium.
- Age. This might just be the most important piece of information. The younger you are, the less you will pay because your risk is lower and your life expectancy is longer.
- Height and weight. Your biometric data is very important because it can be a sign of poor diet, and as such, a health risk.
- Medical history. The insurance company needs to know if you have or have had serious illnesses. This is one of the most important factors in calculating the risk of you dying relatively soon.
- Family medical history. Your family medical history is very important. This includes, for example, knowing if anyone in your family has died from cancer or has diabetes or any genetic problems.
- Medication. Another way of assessing your health is to find out what kinds of medications you take.
- Tobacco. Smoking is one of the main factors that can prevent you from obtaining life insurance. Smokers have a high risk of becoming ill in the near future, which is an important factor for the insurance company in determining whether to cover you, and if they do offer you coverage, the premiums will be high.
- Lifestyle and hobbies. The insurance company will want to know if you engage in high-risk sports, have a job that regularly puts you at risk, or if there is risk inherent in your lifestyle.
- Drugs and alcohol. Just like with tobacco use, other addictions can put your health at risk, and as such, the companies can penalize these during the qualification process.
- Economic status. Your risks are higher if your financial health is poor. The company needs to know what your income is, what you do for a living, what savings and investments you have, etc. This information helps them to assess your financial solvency and to find out if you have the resources to protect your health in the event of an accident or illness.
- Health insurance. Having good health coverage is important because it allows you to stay in good health and take care of it, and as such, minimizes your risk of death.
- Other life insurance policies. In general, insurance companies want to know if you have other life insurance policies because it allows them to compare the risks they assume with those assumed by other firms.
- Driving history. Many insurance companies ask for your driving history to see if you have a history of traffic violations that represent a risk to your life.
The insurance company will use all this information to calculate your death risk. Their focus on the risk is not always the same, it varies depending on the type of policy you are applying for. For example, if you want a term life insurance plan, the company understands that your risk is lower, because the policy will only be in effect for a few years. These types of plans are more affordable and easier and simpler to qualify for.
On the other hand, if what you want is a whole life policy, which never expires and is designed to last your entire life, the risks assumed by the insurance company are much higher, and consequently, the qualification process is more stringent. To find out more about both types of life insurance, read this article, which compares term and whole life insurance plans.
Among some of the more complicated and demanding requirements involved in whole life insurance are medical exams. Companies usually request medical reports to verify that your health condition matches what you have reported. The exams can include blood and urine tests as well as blood pressure and other mandatory exams. On occasion, they can also include stress tests, x-rays, and other more complex analyses. The purpose of these is to look for evidence of what are known as preexisting conditions. In other words, they are looking for any sign that you have or have had a serious illness that could disqualify you from coverage. They also look for other ailments, including cholesterol, diabetes, asthma, and check for the presence of drugs, alcohol, and other substances in your blood.
Once they have collected all this information, the process continues. It can sometimes take weeks to complete, so you need to be patient. There are companies that offer a life insurance plan during this time, with reduced coverage, and pending the final qualification results.
If at the end of the process the you qualify for coverage, then the company will offer you the final terms for the policy, which many times coincide with those that were included in the original quote. The terms will outline terms premium amounts, death benefit, the duration of the policy (for term policies) as well as savings components and cash value (for whole life policies).
Tips on Qualifying For Life Insurance
As you can see, the qualification process can be a difficult and time-consuming process, and so it is important to understand that it can take time to obtain the policy, or that you may not qualify at all. This is why you should be aware of the following tips to help you qualify and deal with the uncertainty inherent in the process:
- Qualify while you are still young. The best way to face the process of purchasing and successfully qualifying for a plan is to do it as soon as possible. If you are young, your health will be better and your life expectancy will be much longer. Consequently, your risk will be low and the company will be able to insure you. In addition, your premiums will be lower.
- Be honest. Try to be as honest as possible and answer all the questions truthfully. Don’t hide any information. If the company later finds out that you have lied, they can enforce the incontestability clause and void your policy. Learn more about clauses in a life insurance policy. Keep in mind that many insurance companies share data, so if you lie to one, another company can find out about this by simply cross-referencing the information you provided them.
- Second opinion. If the company rejects you, you have the right to request a second opinion from an independent agent. If they rule in your favor, you can protest the insurance company’s decision.
- Choose the type of insurance you purchase with care. If you have difficulties qualifying because of poor results on medical exams, you have the option of purchasing a term life insurance policy. Their requirements are less demanding and in some cases don’t require medical reports.
- Be patient. It’s important to be patient during the qualification process. This applies not only with regard to the time it takes, but also because the insurance agents can be very insistent, asking you the same question over and over again and request that you provide all types of information.
- Take care of your health. If you are considering requesting coverage, take care of your health: stop smoking, minimize alcohol consumption, lose weight, and exercise. The better your physical condition, the higher your chances of being approved.
- Be honest about crimes you’ve committed. Be truthful when filling out the statement to the insurance company about crimes you’ve committed in the past. No one likes to go through this, but it’s best not to hide anything, and many crimes are minor and have little effect on qualifying. On the other hand, other crimes, such as kidnapping or rape, are very serious and can cause you to be ineligible for coverage. If this is the case for you, make sure you are fully informed and talk with an insurance agent about your options.
These tips will make it easier for you to go through the process of purchasing a life insurance policy. If you do so successfully, you will be able to enjoy a product that has the important advantage of lending you confidence and peace of mind.