What’s The Problem With Life Insurance?
"Insurance is one of those things in life that you have to buy when you don't need it."
Life insurance companies have a problem. The traditional procedure to apply for life insurance takes too much time for consumers accustomed to instant gratification with their online purchases. More buyers expect to shop and buy what they want online, including purchases like cars, homes and other big ticket items. But life insurance companies traditionally use lengthy application forms, unfamiliar words, complicated questions, a medical history questionnaire, followed by an intrusive medical exam involving the collection of bodily fluid specimens. Some insurance companies have implemented “simplified underwriting” by limiting policy issue to younger ages with lower amounts of coverage and asked for medical records noting the results of a recent physical exam. Getting a quote for the cost of life insurance coverage can be done using many sites with online tools. But, the application process remained pretty much the same. Then a couple of things happened which facilitated an all electronic application. The introduction of the facsimile machine permitted the electronic transmission of legally binding, signed documents. For instance, guaranteed issue medical insurance allowed an insurer or government health insurance exchange to use email, telephone, fax and the internet to obtain an application online and respond within a matter of days or even minutes. The explosion of personal data stored online became inventory which could be monetized and sold to marketing companies. Life insurance companies have used their mutually owned Medical Information Bureau for many years as an exchange of personal data relevant to assessing risk. Prescription drug use, laboratory test results, claims history, public records; all became valuable information and could be transmitted electronically for a price. Now, high tech companies have developed online enrollment platforms which promise to expedite your electronic application and provide a response in 25 minutes or less for coverage up to 1.5 or even 2 million dollars, depending on age and policy selection. The policies are term coverage for 10, 15, 20 or 30 years, for instance. Most importantly, for qualified individuals, the life insurance is non-medical, without the usual in-person medical exam. If you get stuck completing the form, instant help is available by clicking on the chat icon. Some sites have a video tutorial to explain how to apply. The high tech solution promises an all electronic transaction to apply for a substantial amount of term life insurance on a nonmedical basis and pay for it with a credit card-instant gratification.
One life insurance company offers 3 tracks for an application to take: 1. Policy issue in as little as 25 minutes, 2. Fast track consideration in 24-72 hours or, 3. Full underwriting taking up to 30 days or more. That’s important, because an immediate declination reflects badly on your insurability record. The option for a life insurance company to continue gathering information with the possibility of a positive outcome is better than an outright declination.
At another online term life insurance application site, coverage is offered which is NOT convertible. An important part of a term life insurance plan strategy is to protect your insurability. That is, if during the term life period, up to 30 years or a certain age, you were to become uninsurable, the right to convert your coverage to a permanent policy guarantees that you will have the option to continue coverage after the policy term period ends. A conversion provision in a term life insurance policy is a critical element to secure your future insurance planning.
Due diligence: Before you apply online, know who the agent is and know the financial ratings of the life insurance company issuing the policy.
Contestability Period: Depending on the state in which the policy is issued, most plans have a 1 or 2 year contestability period in which the policy coverage can be rescinded for almost any reason. At the end of the period, a policy can be cancelled for fraud and other specific acts. So, a life insurance company may approve your application within minutes of submission, but then continue underwriting and monitoring you for up to 2 years or more. Full disclosure in your application is essential to avoid declination or coverage being rescinded. Even an accidental omission of accurate information, credit history, medical and prescription drug data, hazardous recreational activity such as SCUBA diving, etc. could doom your insurability unless disclosed at time of application.
Underwriting classification: If your policy is issued on a less than favorable basis, should you accept or decline the offer of coverage? Know what underwriting categories and table ratings may be imposed on you and why. Don’t apply if your medical condition, occupation, behavioral history, etc. will result in an automatic declination. Guaranteed issue life insurance is an option for those eligible.
Life insurance is purchased with your good health, integrity, financial responsibility, stable lifestyle, good moral character, and an insurable interest in one’s human life value whose estate can be measured in a dollar amount.
Conclusion: For some, life on the internet is lived at the speed of light. Life insurance companies realize that to be relevant in an electronic marketplace, they must incorporate tools and procedures to sell and service their products. The storehouse of personal data is growing at an exponential rate; a commodity which can be exchanged electronically and transmitted business to business. Insurance companies are increasingly confident of their ability to gather data sufficient to make an accurate assessment of an individual’s insurability risk for a life insurance policy. But, they’re not all in on the process just yet. So far, only basic term life insurance plans are currently offered on a nonmedical underwriting basis with strict eligibility limits placed on pre-existing medical conditions, issue ages, coverage amounts, and impaired risk categories. But, it’s a start and a calculated move into using new methods and procedures to increase their client count and attract new generations of insurance consumers.
It’s term life insurance. It’s temporary coverage usually to meet a declining need. You’ll probably outlive it.
How much insurance do you need?
Why buy life insurance now?
Getting the right kind of life insurance now can guarantee your future insurability. Generally, a person can medically qualify for a larger amount of life insurance for a lower cost at a younger age. Health impairments usually increase with age which makes insurability more difficult. While it is true your income gradually increases with age, making affordability easier, the cost of life insurance goes up at older ages. The thinking is: Buy as much life insurance as you can afford while young, then convert all or part of the coverage to a permanent plan when your income is higher. It’s like applying for credit; it’s easier to get if you already have some.
Over time, your insurability can be influenced by many factors; occupation, health status, income, residing outside the U.S., behavioral and lifestyle choices or adverse legal outcomes, for example.
Who should be my beneficiary?
Beneficiary designations are usually in two categories: Primary and contingent.
Note: Remember, it is best there be an insurable interest between you the insured and your beneficiary. That is, the person or legal entity would suffer a financial loss as the result of your death.
When naming co-beneficiaries, children for instance, do not assign specific dollar amounts to each individual. Use a percentage of the face amount as an allocation to each child. Or, use a general statement such as: “Children born of this marriage in equal shares, or all to the survivor.” A blended family will use language to meet the needs of their specific situation. Remember to keep your beneficiary designation current as circumstances change during the life of your insurance policy.
Since everyone has an insurable interest in their own life, you may use, “Estate of the insured” as your designated beneficiary, if none other exists. However, life insurance companies generally prefer a person, institution, or a trust be named as beneficiary.
What are the guidelines to apply for life insurance online?
Remember: It’s an application, not a purchase order. There are several possible results to a life insurance application, among them are; issue as applied for, a rated policy in which a table rating may be applied to the insured increasing the cost by a percentage of the base premium on a temporary or permanent basis. The table rating applied is a measure of increased mortality risk the insured presents via medical, vocational, occupation, recreational activity, a temporary medical condition, or other underwriting risk. A policy may be issued for a reduced face amount. An application can be declined. Even after the policy is delivered, in California you have a “free look” provision to not take the policy as issued.
Q and A
Q. Do I have to take a medical exam?
A. The life insurance company may request a medical exam to include blood and urine specimens, blood pressure test, height and weight, to verify your medical status. Medical reports from your attending physicians may be ordered. That’s why it’s important for you to provide medical details with your medical history, such as; Provider’s name and address, dates seen, diagnostic and treatment details, past and current medications with details of dosage and conditions treated including over-the-counter medications. The more accurate information you provide, the greater the likelihood your policy will be issued on a nonmedical basis and in a favorable classification.
Q. Is there a record kept of the insurance company’s response to my application?
A. Yes. Insurance companies use the Medical Information Bureau to exchange and report an applicant’s underwriting policy status within lawful parameters. Read the disclosure statements along with terms and conditions. Exam One, Quest Diagnostics, and Milliman Intelliscript gather prescription claims data from Pharmacy Benefit Managers along with lab test results and sell the reports to insurers. DMV reports may be requested. The Medical Information Bureau has information if you’ve applied for individual life, health, disability, or long term care insurance. A public records search may also be used as part of your evaluation for life insurance. Insurance companies insure unknowns, but they want to know everything to make an informed assessment of the risk they’re insuring. On your application, practice full disclosure to get the best deal and fast issue of your policy.
Q. I am a single parent and cannot afford the monthly insurance payments. Is it OK for my parents or my Ex to pay the monthly charge?
A. Yes. The premium payer can be another person or institution. However, no ownership or beneficiary rights are automatically given to the payer because they are paying for the insurance. The payer would have to be designated as the policy owner in the application and sign as such in order to be granted policy ownership. Insurable interest rules apply to ownership but not necessarily to the premium payer.
Contact the author/agent: Robert M. Coleman-California Insurance License #0563687, for assistance to help meet your life insurance needs.
Copyright: Robert M. Coleman 2021
Note: Insurance companies may consider the following conditions as uninsurable or require extensive medical records to assess risk:
• Alcohol abuse • Amyotrophic lateral sclerosis • Aneurysm • Bipolar disorder • Cancer (other than basal cell & squamous cell) • Cardiomyopathy • Chronic hepatitis • Chronic kidney disease • Chronic obstructive pulmonary disease • Diabetes (Type 1) • Eating disorder • Heart disease or failure • HIV positive or medically diagnosed as having AIDS • Hunting
ton’s disease • Liver cirrhosis • Multiple sclerosis • Organ transplant • Peripheral arterial disease • Post-traumatic stress disorder • Psychosis • Schizophrenia • Sickle cell disease (not including the trait) • Stroke (mini-stroke/TIA may be insurable) • Systemic Lupus • Any use of cocaine, methamphetamines, heroin, opioids, hallucinogens or any controlled substance not prescribed by a physician • Currently in a hospital, long-term care facility or hospice • Confined to a wheelchair, had any memory impairment, or used supplemental oxygen within the past 12 months • Received assistance or supervision with dressing, eating, bathing, toileting, or moving around the house within the past 12 months • Unexplained weight loss.
Guaranteed issue life insurance is available for those eligible.