Understanding life insurance is a lot simpler than you thought. It’s essential to understand how the various policies work, so you can pick the right product to protect your family and your future. We offer various products that will fit any budget.

Since there are  various types of policies available to consumers, let’s use term life insurance as our example to explain how the process works.

Applying for Life Insurance

Every life insurance policy starts with getting a quote. This is an estimate of the amount of money you’ll be paying each month to get the coverage you want. It’s important to understand that when you get a quote it is not an actual contract offer, but rather an estimate of your monthly premium. 

The actual amount will be based on many factors; including how you answer a series of personal questions. While the questions may feel a bit intrusive, they aren’t designed to invade your privacy, but rather to provide details directly related to the monthly premium you will pay. Because of how term life insurance works, you won’t get a final offer and know the exact amount of your monthly premium until your application goes through an underwriting process. This is why it is important to be as accurate as possible when applying.

Some of the things you might be asked during the application process include:

• What is your individual or joint annual income? 
• Information about your medical history.
• Information about your family’s medical history.
• What, if any, financial assets you may have such as retirement accounts, real estate, stocks and automobiles?
• If you indulge in any hobbies or activities that involve high levels of personal risk (skydiving, scuba diving and etc.)
• Upcoming travel plans to high-risk locations like war zones or areas that are riddled with infectious diseases.
• If you have a history of any mental health issues or conditions require(d) medical attention.
• Your driving record.
• Personal identifying information (or PII).

What questions will Life Insurance companies ask and how do you prepare?

Depending upon your specific circumstances and the coverage you’re seeking, a medical examination might be required when applying for life insurance. This is usually needed to find out if you have any medical conditions that may affect your monthly premium for the coverage you’re seeking. Your medical exam should not take more than 30 minutes, and may actually help you in getting a lower monthly payment. Click here to learn more about medical exams. 

How underwriting helps price your Life Insurance policy

Once your application is complete, all of the information you provided is then factored into actuarial tables that are used by insurers to calculate risk and insurability. This process of reviewing your application is called “underwriting”. (An actuarial table is a scientific word meaning “life table.” In actuarial science and demography, a life table is a chart which shows, for each age, what the probability is that a person of a specific age will pass away before their next birthday based on specific criteria. In other words, it represents the survivorship of people from a certain population base.) After all of your information has been reviewed and assessed by an insurer during the underwriting process, you will be placed into a “rate class” category. Rate classes are a system used by insurers to determine how much you’ll pay for life insurance. Individuals are placed into figurative groups or “classes” based on their projected mortality risk based on the actuarial table. This is why it is essential that you provide the most accurate medical information possible during your application process.

Acceptance and payments

Once you have completed your life insurance application and it goes through the underwriting process, you will receive a final offer from the insurance companies that you applied for coverage with. 

If you accept their offers, this is when a first payment on the premium is usually needed to put the policy into effect. Your first payment can be made any number of ways including: direct draft from your checking or savings account, electronic funds transfer (EFT), or debit/credit card.

After making your initial premium payment, you will then choose how you would like to continue to making payments for the life of the policy. Premiums can be paid monthly, quarterly, or annually. These payments can be made by traditional checks through snail mail, or by bank draft or EFT on a recurring basis. It should be noted that if any payments are missed, your policy may be considered by your insurer as a “lapsed” policy.

Now that you understand the basics of how a life insurance policy, it’s time to secure coverage and provide the peace of mind your loved ones deserve.