Term Life Insurance Application
The process of applying for term life insurance may seem daunting, but it doesn’t have to be. Here’s what you can expect to be asked on your application for term life insurance.
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Contact Information
The first section of the term life insurance application will ask you for your basic contact information, such as name, address, phone number and email address.
You may also be asked for identifying information such as a driver’s license or passport number. This information is requested to confirm that you are who you say you are.
The application will ask for the name of the owner of the policy, if it is different from the insured. As the person whose life is being covered by the insurance policy, you are known as the ‘insured.’ Often, but not always, the insured is also the owner of the policy. There are some cases in which someone will own a policy on someone else.
For example, a wife may own the policy on her husband, and vice versa. This is sometimes done for tax and inheritance reasons.
If someone else is buying an insurance policy on you, the company will ask who the owner is and what their relationship is to you. An insurance company will not issue a life insurance policy to an owner who does not have an ‘insurable interest’ in the person being insured, so you cannot take out a policy on a stranger.
Employment Information
The application will ask you for the name and address of your employer, and your job title. Your job title may be factored in to your premium calculation if you have a risky job, such as a police officer or tree surgeon, or if you travel a lot, particularly to underdeveloped countries.
You may also be asked about what hobbies you engage in, particularly risky ones such as automobile or motorcycle racing, skydiving, bungee jumping and so on.
Financial Information
On your application, you will be asked for your annual salary, and your net worth. These figures will be compared with the amount of insurance you are applying for.
Since many people use term life insurance to replace their income in the event that they die prematurely, the amount of insurance applied for should bear some correlation to the insured’s annual income and age.
For example, a 40-year-old man with two children who makes $100,000 a year may need $1,500,000 in order to replace his income. An application for a $1.5 or $2 million policy would be reasonable for this man. A 50-year-old with no children who makes $45,000 a year may only need $350,000 to replace his income.
If that 50-year-old is applying for a $5 million policy, that may raise a red flag to the insurance company, and he may not qualify for that amount of coverage.
Other Coverage
You will be asked if you have, or are applying for, other insurance coverage. This is related to the financial information, since your income and net worth are compared to the total amount of insurance coverage you have.
Be sure to specify any policies you have as well as any coverage you have through work.
Medical History
You may be asked detailed information about your medical history during the application process. This will include questions about any medical conditions you have, any medications you take, and any surgeries you have had or plan to have.
You should have any medications available so that you can indicate the name of the drug, the dosage, and what it is for on the application. You should also know the date and nature of any procedures or surgeries you have had.
You will be asked to provide the name and contact information of your primary care physician, and to give your consent for the insurance company to contact your physician to get a synopsis of your medical history.
It’s important to be honest about your medical history. If you misrepresent your history or leave out pertinent information, the insurance company can revoke your policy or deny a claim. The length of time the insurance company has to revoke the policy is usually two years.
Family History
In addition to your own medical history, the insurance company will want to know something about your family members. You will probably be asked about the ages of your parents and siblings, and whether they are still living.
You may be asked for their causes of death, if they are deceased, and whether they have or have had any diseases that can be hereditary, such as cancer, heart disease, diabetes and so on. By asking these questions, the insurance company is trying to assess your risk of developing one of these serious diseases.
Driving and Credit Histories
You may be asked to sign a release for the insurance company to access your driving record and credit rating. Your driving record is important because if you have a history that includes multiple car accidents, you are at risk for future accidents.
It also indicates that you engage in risky behavior in general, and it may impact your premium.
Your credit rating may be considered in terms of your ability to pay the premium on your policy. Insurance companies expend a fair amount of time and money during the application process, so they want to be sure that you will be willing and able to pay the premium on your policy and keep it in force.
Beneficiaries
You will be asked to name a beneficiary on your life insurance application. The beneficiary is the person who will get the money in the event that you die during the term of the policy, often the spouse of the insured. You will need the name, date of birth and Social Security number of your beneficiary.
If you are married with children, you may want to name your children as contingent beneficiaries. A contingent beneficiary is one who receives the money if your primary beneficiary dies before you do.
Note that if your children are minors, you should name an adult as the guardian, since the insurance company cannot pay out a settlement to a minor child.
The guardian will manage the assets until the child reaches the age of majority, which is 18 in most states. If you do not name a guardian in the policy application, the court will appoint one when needed. You can also set up a trust for the benefit of your minor child or children, and have the trust be the beneficiary of the proceeds of the policy.
Beneficiaries can be changed at any time during the term of the policy. If you have a change in your circumstances, such as a divorce or the death of a spouse, review your policy to see what changes need to be made in your beneficiary designations.
The Paramedical Exam
As part of the application process, you may be required to undergo a paramedical exam. During a paramedical exam, a nurse of other medical professional will come to your home, or you will meet at a designated facility.
The nurse will record your height, weight and blood pressure, and may take a blood and urine sample. You may also need to have an electrocardiogram (ECG).
The information and the results of the analysis of the blood and urine samples and ECG will be sent to the insurance company to assist them in determining your risk. You can request that the results of your paramedical exam also be sent to you.
Underwriting
Once the insurance company has your completed application, medical record and paramedical exam results, they will begin the underwriting process. Underwriting is simply the process of determining your risk and, therefore, your premium.
Different insurance companies use different underwriting guidelines, so it is important to compare quotes from different companies. If you are a smoker, for example, or have high blood pressure, you may find quite a variation between rates from different companies, as different companies assume different levels of risk for these factors.
The underwriters will assign you a rating depending on your risk. Someone who is in perfect health with very low risk may receive a rating of ‘super preferred’ or ‘preferred,’ while those with a more moderate risk may receive a rating of ‘standard.’
Applicants who have more risk than the insurance companies like to see may be offered a policy with a higher premium, which is known as being ‘rated.’ In some cases, an applicant may be denied insurance coverage because the insurance company deems them too risky to insure.
By knowing what to expect when you apply for term life insurance, and carefully comparing quotes from different companies, you can be sure you are getting the best life insurance policy to protect your family.
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