As we all know, life insurance can be a crucial investment that can help protect your loved ones in the event of your untimely death as it can provide financial support to your family by paying out a lump sum of money to your beneficiaries when you pass away. What usually remains more of a mystery (at least at first) is what it takes to qualify for a life insurance policy and how life insurance applications work.

In this article, we’ll discuss how a life insurance application works and hopefully provide you with some helpful tips on how to qualify for the best life insurance policy for you and your family.

What is life insurance?

Life insurance is a contract between an individual (the policyholder) and an insurance company. In this contract, the policyholder pays a premium to the insurance company in exchange for a death benefit to be paid to the policy’s beneficiaries upon the policyholder’s death. The purpose of life insurance is to provide financial support to the policyholder’s beneficiaries after their death.

The beneficiaries of the policy can then use the death benefit to pay for funeral expenses, outstanding debts, living expenses, or any other expenses that may arise.

Types of Life Insurance

Before completing the application, it’s important to understand the types of life insurance available. There are three primary types of life insurance: term life insurance, whole life insurance, and guaranteed issue whole life insurance.

Term life insurance:

Term life insurance is a type of life insurance policy that provides coverage for a specified period, such as 10, 20, or 30 years. If the policyholder dies during the policy term, the insurance company pays a death benefit to the beneficiaries named in the policy. If the policyholder outlives the policy term, the coverage ends, and the policyholder receives no benefit.

Pros of Term Life Insurance Policy:

1. Affordability: Term life insurance is generally more affordable than other types of life insurance policies because it provides coverage for a limited period of time. This makes it an excellent option for individuals who need coverage but have a limited budget.
2. Flexibility: Term life insurance policies are flexible and can be customized to meet specific needs. For example, policyholders can choose the coverage amount, the policy term, and the beneficiaries.
3. Simplicity: Term life insurance policies are relatively simple and easy to understand. The policyholder pays the premium, and if they die during the policy term, the beneficiaries receive the death benefit.
4. Convertibility: Some term life insurance policies can be converted to permanent life insurance policies, such as whole life insurance, without the need for a medical exam. This can be a convenient option for individuals who want to maintain coverage beyond the initial policy term.

Cons of Term Life Insurance Policy:

1. Limited coverage period: The coverage provided by term life insurance policies is limited to a specific period. If the policyholder outlives the policy term, the coverage ends, and they receive no benefit.
2. No cash value: Unlike some other types of life insurance policies, such as whole life insurance, term life insurance policies do not accumulate cash value over time. This means that policyholders cannot borrow against the policy or use it as an investment.
3. No return on investment: If the policyholder outlives the policy term, they receive no benefit, and the premiums paid into the policy are not returned.

Whole life insurance

Whole life insurance is a type of life insurance policy that provides coverage for the policyholder’s entire lifetime. In addition to a death benefit, whole life insurance policies also have a savings component known as cash value. The premiums paid by the policyholder are divided between the death benefit and the cash value, which accumulates over time.

Pros of Whole Life Insurance Policy:

1. Lifetime coverage: Whole life insurance provides coverage for the policyholder’s entire life as long as the premiums are paid. This can provide peace of mind, knowing that loved ones will be financially protected no matter when the policyholder passes away.
2. Cash value: Whole life insurance policies accumulate cash value over time, which can be borrowed against or used as collateral for a loan. This provides the policyholder with a source of cash that can be used during their lifetime.
3. Guaranteed death benefit: The death benefit of a whole life insurance policy is guaranteed, which means that the beneficiaries will receive a payout upon the policyholder’s death, regardless of the policy’s cash value.
4. Fixed premiums: The premiums for whole life insurance policies are fixed and do not increase over time, making it easier to budget for and plan for the future.

Cons of Whole Life Insurance Policy:

1. Higher premiums: Whole life insurance policies are generally more expensive than term life insurance policies, which can make them less affordable for some individuals.
2. Limited flexibility: Whole life insurance policies are less flexible than term life insurance policies. Once the policy is in place, the coverage amount and premiums cannot be changed.
3. Lower returns: The returns on the cash value component of a whole life insurance policy are generally lower than other investment options, such as stocks or mutual funds.
4. Complexity: Whole life insurance policies are more complex than term life insurance policies and may be difficult for some individuals to understand.

Guaranteed issue whole life insurance

Guaranteed issue whole life insurance is a type of life insurance policy that is available to individuals without requiring a medical exam or health questionnaire. This means that individuals with pre-existing health conditions or a history of medical issues may be able to obtain coverage. Guaranteed-issue whole-life insurance policies are typically smaller in size and have higher premiums than traditional whole-life insurance policies.

Pros of Guaranteed Issue Whole Life Insurance Policy:

1. No medical exam or health questionnaire: Guaranteed issue whole life insurance policies are available to individuals without the need for a medical exam or health questionnaire, which can be beneficial for those who may have difficulty obtaining coverage due to health issues.
2. Guaranteed acceptance: As long as the premiums are paid, the policyholder is guaranteed coverage for their lifetime, regardless of changes in health or other factors.
3. Cash value: Guaranteed issue whole life insurance policies have a savings component that accumulates cash value over time, which can be borrowed against or used as collateral for a loan.
4. Death benefit: Guaranteed issue whole life insurance policies provide a death benefit to the beneficiaries named in the policy, which can provide financial security for loved ones.

Cons of Guaranteed Issue Whole Life Insurance Policy:

1. Higher premiums: Guaranteed issue whole life insurance policies are typically more expensive (dollar for dollar) than traditional whole life insurance policies due to the higher risk of insuring individuals without a medical exam or health questionnaire.
2. Lower coverage amounts: Guaranteed-issue whole-life insurance policies typically have lower coverage amounts than traditional policies.
3. Waiting periods: Guaranteed issue whole life insurance policies have waiting periods before the full death benefit is available. This means that if the policyholder dies of natural causes during the waiting period, the death benefit will not be paid.
4. Limited flexibility: Guaranteed-issue whole-life insurance policies are less flexible than traditional policies. Once the policy is in place, the coverage amount and premiums cannot be changed.

Life Insurance Application Process

Your typical life insurance application process usually starts with an application form. This form typically asks for personal information, such as your name, date of birth, and contact details.

From there, if you are applying for a term or whole life insurance policy, it will also ask for health information, including medical history, family history, and any pre-existing conditions. Additionally, the form will require lifestyle information, such as whether you smoke or engage in any high-risk activities.

After submitting the application form, the insurance company may require you to undergo a medical exam. The exam can include measurements of your height, weight, and blood pressure, as well as blood and urine tests. Depending on your age and coverage amount, the insurance company may also require an electrocardiogram or other diagnostic tests.  No medical exam life insurance policies (both term and whole life) are available in certain situations and in our opinion should always be considered particularly when someone is looking to become insured quickly.

Then, once the application materials (and exam results are obtained), the underwriting process will begin. During this process, the insurance company assesses the risk of insuring you based on your health and lifestyle. The underwriter will evaluate your application and medical records and may reach out to your healthcare providers for additional information. They will also consider factors such as your age, gender, and occupation.

Additional information that may be collected might include:

• Prescription medication history,
• a driving report,
• a criminal background check,
• Medical Information Bureau report (MIB report).

The insurance company will determine whether or not you will be approved for coverage and at what rating class based on the underwriter’s evaluation.

What does a life insurance medical exam test for?

A life insurance medical exam is a physical examination that is conducted by a medical professional as part of the underwriting process for a life insurance policy. The exam typically takes around 30 minutes and involves measuring vital signs such as blood pressure, heart rate, height, and weight, as well as taking blood and urine samples.  In some situations, an EKG exam may also be performed.

Things that a life insurance medical exam typically tests for will likely include:

1. Medical history: The medical professional may ask questions about the individual’s medical history, including any pre-existing conditions or illnesses, past surgeries or hospitalizations, and family medical history.
2. Vital signs: The medical professional will measure vital signs such as blood pressure, heart rate, and height and weight.
3. Blood and urine tests: Blood and urine samples are typically taken to test for a variety of factors including cholesterol levels, liver and kidney function, and blood sugar levels.
4. Drug and nicotine use: The medical professional may ask about drug and nicotine use, and may test for the presence of nicotine or other substances in the individual’s blood or urine.
5. Other health factors: The exam may also test for other health factors such as heart disease risk factors, lung function, and cognitive function.

The results of the medical exam are used by the insurance company to evaluate the individual’s overall health and determine the risk of insuring them. This information is then used to determine the appropriate premiums to charge for the life insurance policy. In some cases, if the individual is deemed to be high-risk, the insurance company may choose to offer a policy with higher premiums or may even decline coverage altogether.

Possible Outcomes of Life Insurance Application

The possible outcomes of a life insurance application include acceptance, conditional acceptance, postponed decision, or declination. If the application is accepted, the insurance company will issue a policy, and the premium payment begins. If the application is conditionally accepted, the insurance company will issue a policy with modifications to the coverage or premium.

If the application is postponed, the insurance company may need additional information to make a decision. In this case, the insurance company will either ask you to provide more information or may contact your healthcare provider for additional details. If the application is declined, the insurance company will provide a reason for the decision.

That said, it’s important to remember that not all life insurance companies are going to use the same underwriting guidelines when determining whether or not an applicant will be accepted or what rate they will receive.

This is why it’s always important to first work with an insurance agent who is familiar with the various underwriting guidelines of the top life insurance companies so that you can avoid applying with a company that isn’t going to provide you with the best opportunity for success.

The good news is that here at IBUSA, we work with dozens of different insurance companies so that when it comes time to help you find the best life insurance policy for you, we’re not going to be forced to rely on just one or two options!  All you need to do is give us a call so that we can get started!