Applying for life insurance may seem daunting, but it’s actually fairly straightforward. Understanding the basics of getting life insurance can help the process go smoothly.
Life insurance is a financial product for transferring risk. Many people want to make sure those they care about would be taken care of financially if they died. It can be difficult to save the necessary funds to build this added financial security on your own—by purchasing life insurance, you transfer that risk to the insurance company.
In return, the insurance company collects certain information about you to assess that risk. Life insurance premiums (how much you will pay for your policy) are based on a range of factors. The two most significant factors that you probably know about are your age and your health. The younger and healthier you are, the lower your premiums are likely to be.
In addition, companies may look at your lifestyle factors. For example, they’ll want to know if you have any dangerous hobbies, such as skydiving , if you’re a smoker, or if you have a driving record that includes offenses such as a DUI in recent years.
When you buy an individual life insurance policy, it usually goes through an underwriting process. This means you give the insurance company general information about your health and lifestyle that they use to evaluate your application.
Some policies may require you to take a paramedical exam for additional information on your health. Services such as MIB, Inc.,a not-for-profit membership organization of insurance companies, can alert the company of any inconsistencies in your application, as they keep a database of information gathered from other insurance companies on your medical background.
It pays to be truthful throughout the application process, as the information gathered will help determine your approval for coverage and premium amount. Your current state of health and lifestyle allows the insurance company to offer you the most competitive rate on your insurance.
If your health is not all that it could be, you should still move forward on applying for life insurance. If you have positive changes in your health, you may be able to re-qualify for a lower premium rate later on!
Unfortunately, many of us don’t put something much more important in the “must have” column of our budget: life insurance.
You’ve taken an important step by deciding to go through the life insurance application process. Here’s what you need to know.
Be sure to "kick the tires" before you purchase.