Life insurance is a contract between you, the policyholder, and your chosen insurance company. Under that contract, you will make premium payments each month in exchange for financial coverage from your insurer. If you die while the policy is in force, your named beneficiaries can collect a death benefit, sometimes called face value or face amount.
Generally, there are two types of life insurance: term life insurance and permanent life insurance.
Term Life Insurance
Term life insurance lasts for a specific period of time or term. Terms typically run for 10, 20 or 30 years — but some may be as short as a few months to a year, and others can extend to 40 years or longer. Insurance companies preset premiums for the entire length of a term. Although age is only one of the factors life insurance companies consider when issuing coverage, the older you are when you buy a term policy, the more you’ll pay in premiums.
As a rule, term life insurance rates are cheaper than permanent policies because they don’t have a savings or investment component. Term policies are also less expensive because coverage is only guaranteed if the insured person dies during the term. In other words, after the term expires, so does your coverage.
Permanent Life Insurance
Permanent life insurance supplies coverage for a policyholder’s lifetime — as long as premiums get paid. Unlike term life, permanent life insurance policies have a cash value component in which part of the collected premiums get invested in a tax-deferred account. This acts as a savings account for the policyholder, who can borrow or withdraw from the funds under certain circumstances.
There are three major types of permanent insurance: whole life insurance, universal life insurance and variable life insurance. Each policy type has a cash value component driven by different investment options such as a fixed interest rate, stocks, bonds or mutual funds.
Preparing for a Life Insurance Application
There is information you can collect in advance to make your life insurance application process smoother and faster, including:
Personal identification like a driver’s license or passport
Social Security number
Proof of address, including utility bills or bank statements
Financial information such as income verification and tax returns
Medical records (for certain types of policies)
Beneficiary information, including their name, date of birth, relationship and contact information
Generally, each insurance company has specific medical requirements for its policies. Medical records will also come into play if you have a pre-existing condition, such as heart disease or diabetes. In those cases, you may need to supply medical records or undergo a medical exam. We will talk more about the medical requirements of a life insurance application in the next section.
The medical portion of a life insurance application is one of the most important sections. It asks for detailed information about your health, health history and your family’s medical history.
Personal Health History
Insurance underwriters consider your health history when evaluating you for coverage. Here are the primary areas of interest you may find on a life insurance application:
Medical history: Your life insurance application will ask about significant medical conditions you have or have experienced including chronic illnesses, past surgeries or other major medical treatments. Be as specific and detailed as possible about each situation, its duration and your ongoing or past treatment.
Hospitalizations: If you have experienced recent hospitalizations, you may have to provide details about the location, dates and types of treatment you received.
Medications: List all prescription medications with the dosage amount and frequency taken, in addition to any over-the-counter medications and supplements.
Mental health: Give details regarding treatment you have received for mental health conditions like depression, anxiety or bipolar disease. You may also be asked to provide information on current or past treatments and therapies.
Height and weight: Insurance companies use these statistics to calculate your body mass index (BMI), which helps underwriters assess your health.
Family Health History
Since some medical conditions are genetic, life insurance companies will also want to know about your family’s health history. An application may require you to provide information about your immediate and extended family members, including any medical conditions or diseases. If your family has a history of certain conditions, you may have to provide additional information to the insurer.
When reporting current medications, you will likely need to report the following information:
How often you take the medication
Why you’re taking the medication
When the medication was first prescribed to you
The medication’s impact on your health, including any side effects
If you’re unsure about the details of your medications, we recommend contacting your doctor for the most accurate information.
Medical Exam and Physical
Most life insurance companies require the potential policyholder to take a medical exam as part of the application process.
The medical exam is one of the most important components in establishing the premium the applicant will pay. A licensed medical professional, such as a nurse, should conduct the exam in person. A medical exam usually includes:
A review of the applicant’s health history including past illnesses, surgeries, medications, lifestyle habits and a family health history
Physical measurements, including height, weight, blood pressure, pulse rate and other vital signs
Blood and urine samples, which yield information about an applicant’s overall health
Other tests are based on an applicant’s age, other risk factors and the amount of insurance requested.
In most cases, the insurance company pays for the medical exam as part of assessing the applicant.
If you have a pre-existing condition that could disqualify you from coverage or simply do not want to take a medical exam, you can explore no-exam policies. However, these options are often more expensive.
Lifestyle questions on a life insurance application cover various issues, all of which can affect an insurance company’s decision about your policy.
Alcohol and drug use: A life insurance company will ask if you use alcohol and drugs, including the frequency of quantity of your consumption. It may also ask if you have a history of alcohol or drug abuse, including related treatments. Finally, you will have to report any legal or criminal issues stemming from alcohol and drug use.
Criminal records: Insurers will ask for details about any criminal charges and convictions. Much of this information is available through court systems for adults, but the company may ask additional questions. Some states also allow insurers to evaluate an applicant’s driving record, such as moving violations.
Lifestyle activities: Since insurance companies are in the risk management business, providers consider any activity that raises the risk of injury or death as a potential red flag. This could include participation in a hazardous sport like skydiving, rock climbing and scuba diving. Or, occupational risks for professions like first responders, pilots and construction workers. Insurance companies may also consider if you frequently travel to locations considered high-risk or participate in other activities considered risky, like skiing or motorcycling.
In addition to questions about yourself, your health and your lifestyle, life insurance companies may also ask about your finances. This could include:
If you own multiple life insurance policies: Owning multiple insurance policies is not always a problem. The insurance company wants to understand a customer’s total insurance coverage and obligations with an eye toward whether the applicant is over-insured. A provider will also want to assess the applicant’s ability to afford the costs of multiple policies. If you have multiple policies, be sure to disclose each one to avoid potential application denial, policy cancellation or legal issues.
Your financial situation: Insurance companies look for stability when evaluating an applicant’s financial situation. Understanding the details of your or your family’s finances can provide insight into your needs for life insurance. The company will evaluate your assets, debts and other financial obligations.
Premium payments: An insurance company needs several pieces of information to ensure payments can be sustained over the life of a policy. The company will provide you with several options for payment frequency (the most common is monthly payments) and payment methods. The ultimate goal for the insurance company is to offer payment terms that make it as easy as possible for the policyholder to pay.
A beneficiary is a person or entity that you select to receive the policy’s death benefits upon your death. How someone chooses beneficiaries is based on their specific situation. Generally, you will have to elect a primary beneficiary and provide information about that person, including their name and relationship to you.
You will also have to allocate how much of your death benefit you want each beneficiary to receive. This is generally reported in percentages. For example, you may choose to give 100% of your death benefit to your spouse.
You can also name a contingent or second beneficiary in the event of your primary beneficiary passing away before you. Naming a secondary beneficiary will avoid the death benefit going unclaimed and into the legal system.
We recommend consulting a financial advisor or experienced insurance agent to help you determine the best approach regarding beneficiaries.
Common Mistakes To Avoid for Life Insurance Applications
Applicants sometimes make mistakes when filling out a life insurance application, the most common of which include:
Incomplete or inaccurate information: Accuracy and details are important when it comes to life insurance applications. Be sure to list as much information as possible, answer questions thoroughly and double-check your responses for accuracy.
Not disclosing important information: A lack of transparency can send a bad signal to an insurance company. Omitting important information, notably in regard to your medical history, can result in a rejected application or issues applying for coverage in the future.
Inconsistent information: You may be asked to provide certain types of information more than once. While this may feel redundant, it’s important to make sure your responses are consistent.
Another tip is to keep your insurance agent updated on any changes during the application process, which can save time later in the process. If you have any questions, we recommend working with a financial advisor while completing your application.
What Happens During the Underwriting Process
Once you submit your application, your file goes to the insurance company’s underwriting department. An accurate application should make your underwriting process seamless (although not necessarily fast). However, you can never predict what issues may occur during underwriting.
An underwriter’s first step is to evaluate all components of the application to ensure they have all the necessary information. With risk management as the primary goal, the underwriter will determine if the company can safely insure you based on the information provided.
The underwriter will then verify the information provided through external sources, including your:
Legal and criminal background
Existing insurance policies
Verification of your life insurance application may result in questions from the underwriter. Here are some examples:
The underwriter uncovers financial instability in an applicant’s history that was not clearly reflected in the application, such as late payments on credit cards. It may have been an oversight by the applicant, but it is nonetheless a factor that may require reevaluation.
The applicant has a complex health history, and the underwriter discovers information that requires more medical verification and discussion. Depending on the nature of the problem, the underwriter may approve the application but exclude that specific condition from the policy’s coverage.
The underwriter finds incomplete information and requests additional documentation or clarification from the applicant.
There is no average time frame for underwriting, but it is common for the process to take four to eight weeks. It can take longer if an underwriter needs more information than what was provided on your application.
The Bottom Line
The application process for life insurance is detailed and sometimes complex. A life insurance provider will ask various questions about yourself, your medical history, your lifestyle and your finances to assess if you qualify for coverage and your policy rate. The most important factor in making the process go as smoothly as possible is to be as truthful and transparent as possible on your application.
If you are looking to apply for life insurance, but unsure on which provider to choose, get started today by comparing the top life insurance companies in your area.
Drew Gurley is a licensed life insurance expert with nearly 15 years of experience. During his career as both a licensed life insurance agent and industry executive he has helped thousands of clients with their life insurance needs through his work at Redbird Advisors and Senior Market Advisors. When Drew isn’t working, he spends time with his family supporting Breast Cancer and Epilepsy awareness.
Tori Addison is an editor with over five years of experience in the digital marketing industry. Her includes communications and marketing work in the nonprofit, governmental and academic sectors. A journalist by trade, she started her career covering politics and news in New York’s Hudson Valley. Her work included coverage of local and state budgets, federal financial regulations and health care legislation.