What To Expect When Applying For Life Insurance

For 2012, September is Life Insurance Awareness Month. The following information is to help the consumer know what to expect when applying for life insurance.

Life insurance is generally issued in three basic steps. While the level of coverage applied for, and the type of policy chosen can effect the amount of time it takes to issue the policy. This is an overview of what you should expect from the process of applying for life insurance.

There are several different categories of life insurance. Each one has a set of requirements which must be met  before the company will issue your policy. Sometimes the answer to one health question can change which company the applicant will qualify for. To get started, here are the basic steps to getting your life insurance policy issued:

• Apply: Fill out the application, answering the questions truthfully.
• Underwriting: The company will look at health and other factors to determine insure-ability.
• Policy Issue: The life insurance company takes payment, and sends out the policy.

Let's take a look at each of these steps in a little more detail.

The Application Process

Applying for life insurance is a process. Anyone can say they want a million dollars worth of life insurance, but affording it, and qualifying for it can be the catch. Having a good agent involved will simplify this process greatly.

The agent is responsible for several things: First is ensuring that you, the client have need for the coverage for which you are applying. Second, that you have a good chance for qualifying. Also, will you be able to afford the payment.

Life Insurance Quotes

Before I am able to give anyone a quote, there are a few facts I need to know. Please note: This is how I work. Other agents may take a different approach, but in the long run I feel strongly that following this process is critical to finding you coverage for which you will qualify.

• What is your birth date?
• Do you use tobacco?
• What is your height and weight?
• What prescriptions are you currently taking?
• Has this changed in the last year or two at all?
• What has your health been like the last few years?
• Ever had cancer, heart problems, or any other major health issues?
• What is your driving record like?
• What is your budget?
• What is the reason for this insurance?

Depending on the answers I may be able to give you a quote on the spot, otherwise we will make arrangements to meet again. In the meantime I would contact several different companies and see which ones would best suit your particular situation.

This is technically called field underwriting. If not done properly, this can hurt the person applying for coverage because many companies do not accept applications from persons who have been declined within a certain period of time (usually one year) from another company. It is better to know everything up front.

The Application

Filling out the application for life insurance is usually straightforward. I ask the questions, and do the writing, you answer truthfully, and sign where needed. At this time, if needed, we schedule the paramedical exam (this is where they draw blood, take a urine sample, and may take an EKG and other tests).

Once filled out completely, the application is submitted to the life insurance company, for review and processing.

Behind the Scenes

As part of the underwriting process, the life insurance company will look into your medical history, driving record, and prescription record. They may ask your doctor for a statement regarding past health issues, etc. which can be one of the reasons life insurance policies get held up. They may also ask for a copy of your medical records from your doctor, which can also take some time to get.

From the time of the application to a final decision usually takes four to eight weeks. It could take less, it could take more time, but usually falls in that time frame.

Your agent should be able to see what requirements the company needs to fulfill in order to issue the policy. Depending on what the insurance company finds in their research on you, they will inform the agent of any changes from the stated quote on the application.

Some agents will just quote the best price and hope for the best, and may not ask preliminary questions. This is why having a reputable agent who will walk you through each step in the process is so important.

Policy Issue

Once your policy is issued by the life insurance company, they print it, package it, and send it to your agent. Your agent will usually need to get a signature proving that you have received your copy, and they may need to review a few points regarding your policy.

Life Insurance Policy Reviews

Whether you have had a life insurance policy for a couple of years, or a couple of decades, it is a great idea to have it reviewed by a qualified professional. It may be costing you to much, or there may have been changes since it issued that make your cost of insurance lower.

A surprising number of people do not even know where their policy is. The insurance company is not going to come find your beneficiaries.

I provide life insurance policy reviews free of charge to anyone, and am happy to accommodate your schedule if needed.

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Life Insurance Planning

No matter the stage in life, most people understand the value of having life insurance. The tax-free passing of assets to those left behind can make a huge difference for them. What is your plan? What are your needs?

Most people would like to have that whole life policy that is worth one million dollars. Not everyone needs it. Some people who need it cannot afford it. That does not necessarily mean you should go entirely without, maybe asking further questions such as, "What can I afford?" would help narrow your shopping strategy.

Though from the title of this website and it's over all subject focus, one could easily conclude that I only work with persons in or nearing retirement, that is not the only part of life in which I can help you with your over all financial goals and strategy. No matter your age, having life insurance can be critical for those who depend on you.

If you had died yesterday, what plan is in place for your loved ones to carry on financially? Most of us have those around us who would be emotionally grief-stricken, but add to that grief the prospect of being without the income you provide. Funerals are expensive. The most recent survey is from 2009, and the data there suggests that the average cost of a funeral is approaching $11,000¹.

I recently had a client who passed on. His wife came to see me for other reasons, but she was very adamant that she get life insurance coverage. She saw what it did for her family, and wanted to make sure that she could plan ahead for her children. Since we don't generally want to think about life without our loved ones, we often put off important planning steps until it is to late.

There are a few things you can do to plan now. I do free reviews for anyone who would like to take advantage of this service. Here are some of the questions you would find me asking:

If you have life insurance:

• Where is your policy?
• What is (or was) the purpose of this policy?
• Are the beneficiaries up to date?
• Do the beneficiaries know where to find the policy?
• What type of life insurance is it?
• How much are you paying?

If you do not have life insurance:

• What is your budget?
• Why do you want this life insurance?
• How much coverage would you like to have?
• Do you need this coverage to last for a specified amount of time, or do you need it to be there until the end of your days?
• What is your health like?
• What is your driving record like?² 

There may be other questions asked as well, based on your situation. But these are the basic questions anyone should be asked during the life insurance review process.

If you have questions for me, or would like to review your life insurance policies, feel free to contact me, or just set up your free consultation.

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<sup>1. The average annual increase in funeral cost since 1960 is 21%, making this number on target with anecdotal evidence from other sources such as Funeral Costs: How much does an average funeral cost?. Further, and as the aforementioned article points out, there are other costs not factored into this calculation, such as flowers, publishing an obituary, or the cost of getting loved ones to the funeral.↩
2. Before approving a policy, most companies will at least briefly look at your MVR (Motor Vehicle Record) to determine if you are a risk for them as a motorist. I have seen people in excellent health declined because of repeated offences on the MVR. Lessor offences can also effect the price you pay for your coverage.↩</sup>

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Long Term Care Planning

What if you or your spouse, or one of your other family members were to need ongoing non-medical care? How would it be paid for? Would your family be able to step in and give the care they need?

Long term care policies can help protect assets while at the same time either give family caregivers a rest from their daily duties, or bearing the major burden of the costs associated with that care in a facility. There are a great many ways that these policies can be set up. Consult a professional with experience in the area to see what your needs might be.

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Annuity ABC's

Annuities offer protection and growth.

The internet is so full of information, and sometimes the information is overwhelming. Here are some really concise and interesting videos explaining the advantages of annuities, what they can do, and how they work.

While this link will direct you to a company-specific site, I work with a number of different companies. I always work from the perspective of what you want to accomplish with your money, then what product and/or company would best accomplish that goal.

If the volatility of the stock market has you up at night watch the videos for some new ideas!

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Life Insurance Myth #2: I do not qualify

Life insurance coverage is not for you. It is ultimately for the good of your beneficiary (or beneficiaries). Many people think that just because they have a certain disease they do not qualify for life insurance. I have met many people in Marion County who thought this way. The truth is less black and white than grey. This is one of the many reasons to find a reputable life insurance professional to help find the right policy for you. Life insurance policies are much like a set of screwdrivers: Each tool serves its own purpose.

Why Health Matters

The companies who take on the risk of insuring against an inevitable occurrence do not take on risk without knowing what they are getting into. They have basically one question: What are the chances of this person dying within the next X years?

It is a bit morbid, but they want to know how long you will be paying your premiums vs. how much they will pay at your passing. They then adjust the premium based on their bet of how long you will live. A person in excellent health will generally get a better deal than a person in poor health.

Good Health

Of course, the optimal time to get life insurance is when you are healthy and young. It does not always work out that way, though. There are policies for just about anyone of just about any age. The price can vary depending whether or not your situation warrants a smaller policy with little to no underwriting (Where the insurance company looks at your health records—and sometimes blood and urine samples.), or a bigger policy where the company takes on more risk. One of the oddities of the insurance industry is that each company differs a little on the way they assess various risks. So even with very few health problems, the way a particular company looks at your specific case may vary the price by a lot. This is one of the many reasons to have an agent that works with multiple companies.

A Couple of Bumps in the Road

No matter the age, it is possible for a person to have had health issues. There are a number of minor conditions that do not really change your eligibility. Even some major medical conditions, given the right amount of time between now and your last treatment, are insurable. That does not mean you will be eligible for just any policy; the death benefits available may be smaller, and the price may be a little higher. But you can still qualify for life insurance coverage.

Very Poor Health

Most people have likely seen the commercials on TV with a celebrity offering life insurance as a guaranteed issue "no matter what your health." Unfortunately for many of the people who sign up for that type of plan, there are likely far better options for them. Often the death benefit is greatly reduced for the first year, and gradually goes up over the next two to three years. These policies do cost more, but if the coverage is needed this type of graded death benefit policy is the right tool for the job.

Conclusion

Just because you have a given medical condition does not mean you do not qualify for life insurance. To learn more about your specific situation, contact a trusted insurance agent. Using the right tool for the job makes the process much smoother and with the right agent, it can even be fun!

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Annuities: What to Look For

When I ran across this humorous take on brokers typical attitudes toward annuities, I had to post it. For most people 60 and older being in the stock market is not such a good idea. People in, or nearing retirement should be looking to guard the assets they currently have while avoiding risk. The bottom line is that a 10% loss is not the same as a 10% gain. The older you are, the less time you have to make that loss up.

I deal exclusively in the fixed, and fixed-indexed market. If you are looking for more risk (for example, if you are younger), I can help you find someone trustworthy.

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Life Insurance Myth #1: Cash Value

Speaking with as many people here in the Ocala area as I do about life insurance, there are several myths that come up very frequently. These myths are deceptive on a number of levels, and can actually end up hurting you, and/or your beneficiaries if care is not taken to ensure your actual position. In order to better understand these myths, let's start with the very basics of how life insurance works.

While there are several types of life insurance, not all of them accumulate cash value. If you are not sure what type of policy you have, it is time we sit down together and evaluate your situation.

The Myth

Cash value is great, you can borrow from it or cancel the policy and get that cash, but there are a few myths associated with it. A great many people think that the cash value aspect of a whole life policy is actually increasing the value (or death benefit) of the policy. That is not true in most cases.

In some ways, the cash value aspect can be viewed as detracting from the value of the policy. Since most of the time the insurance company keeps whatever is left, it is money invested without return.

Borrowing from cash value is not something I recommend, since it decreases the death benefit and increases the amount you have to pay until the loan is paid back (with interest). Just cashing out a policy can have negative tax consequences, aside from no longer having the policy.

An Example

Jim is a client (not his real name) who has $350,000 in whole life insurance. He pays about $250 per month for it, which is a great price for his age. But he also has had the policy for about 20 years, in which it has accrued almost $125,000 in cash value. The problem with this is that in most cases, the cash value stays with the insurance company. Essentially, he only had $250,000 in life insurance because the cash value was so high.

But what can be done to fix that? My recommendation to Jim was that he purchase a single-premium life insurance. Considering his age and current health, he could leverage the $125,000 in cash value to buy almost $500,000 worth of death benefit.

What is even better: No more premium payments. Ever.

At a savings of $250 per month, that leaves $3000 per year in freed up money—and he gets a bigger death benefit. Most anyone would be happy to hear that. There are a number of different ways to make this happen, but some of them can have negative consequences. Consult a reputable insurance professional, and get a second opinion if needed before making big moves.

No matter what your situation it is a good idea to review your policy with a qualified person every year or two. Make sure you speak with a reputable insurance professional who acts with integrity. Even if it isn't me.

While I can't make the promise that your situation will work out the same, it does not hurt to take a look. Life insurance contracts are dependent on the insured's current health, health history (another post is coming on that subject), there are also other factors the companies consider.

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