Life Insurance Guide: The Approval Process Explained

Life insurance is a legally binding contract between an insurance company and a policy owner, in which the insurer guarantees to pay a sum of money to the policy's beneficiaries when the insured person dies. The process of obtaining life insurance can be lengthy, but understanding it can help you get the coverage you need at a price you can afford. Here is a step-by-step guide on how to get your life insurance application approved:

1. Determine the amount of coverage you need:

Estimate your expected costs, including funeral expenses, total debts, monthly living costs, medical bills, and education expenses. You can use an online life insurance needs calculator or simply multiply your income by 10 or 15 to get a coverage estimate.

2. Choose a policy type:

There are two main types of life insurance: term life insurance, which provides coverage for a specific period, and permanent life insurance, which offers lifelong coverage. Term life insurance is generally more affordable, while permanent life insurance may be preferable if you want coverage for life.

3. Get an instant quote:

Use online tools to get instant quotes from different insurance companies, taking into account factors like your age, gender, health, and desired coverage amount.

4. Apply online or prepare for an interview:

After getting a quote, you may be able to apply online or set up an interview with a licensed agent to discuss your application in more detail. Have your Social Security number, contact information for doctors and hospitals visited, details of prescription medications, basic financial information, and information about any other life insurance policies you hold.

5. Undergo a medical exam:

A medical exam may be required, depending on your health assessment. This exam is usually quick and free, and includes collecting blood and urine samples, measuring vital signs, and, in some cases, an electrocardiogram. Be honest about your health status, as hidden details could lead to higher premiums or even policy cancellation.

6. Underwriting and final health assessment:

A life insurance professional will review your application and medical exam results to determine your final health class and premium. This step, called the underwriting phase, can happen immediately or take up to a few months, depending on the availability of exams and medical records.

7. Finalize your policy:

Your life insurance coverage is not active until you've accepted and signed the policy, and the first premium payment has been made. Share the policy details with your beneficiaries and store it in a safe place accessible to them.

8. Manage your policy:

After finalizing your policy, you can easily manage it online, including designating or changing beneficiaries.

Tips for a Smooth Approval Process:

- Start the application process early, preferably when you are young and healthy, to lock in lower rates.

- Be honest and accurate when providing information, especially regarding your health, lifestyle, and family medical history. Lying on your application can lead to denial of coverage or benefits.

- Compare quotes from multiple insurance companies and work with an independent agent or broker to find the best rates and coverage for your needs.

- Consider the impact of riders on your premium and choose only those that are necessary.

- Assess your financial goals and how your death might affect your progress toward them.

- Evaluate whether employer-sponsored coverage is sufficient for your needs, keeping in mind that it usually ends when employment ends.

- If possible, choose independent agents or brokers who can provide quotes from multiple insurers, rather than captive agents who work with a single company.

Calculate how much coverage you need

The amount of life insurance coverage you need depends on your personal circumstances. Here are some factors to consider when deciding on the right level of coverage:

Your income

Your life insurance coverage could be based on your income, especially if you're the primary earner in your family. For example, if you earn $100,000 per year, you will likely need more coverage than someone earning $40,000 per year. This is because your income determines your family's lifestyle, and a higher level of coverage will allow them to maintain their standard of living if you're no longer around.

Your debts

If you pass away with outstanding debts, these may be passed on to your family members. Therefore, you should ensure that your life insurance coverage is sufficient to pay off any debts, such as a mortgage, business loan, credit cards, or medical bills. This will help to reduce the financial burden on your loved ones.

Your children's education costs

If you have children, you may want to factor in the cost of their future education when choosing your life insurance coverage. Consider whether your children attend private school and whether you want to help with their college tuition.

Your funeral plans

If you have specific preferences for your end-of-life expenses and burial arrangements, make sure to include these costs in your calculations. For example, if you intend to enter an assisted living facility in your later years or have particular funeral wishes, these can increase the amount of coverage you need.

You can use an online life insurance coverage calculator to help you estimate the right amount of coverage based on factors such as your income, expected burial costs, and the number of children you have.

Choose a policy type

There are two main types of life insurance: term life insurance and permanent life insurance. Term life insurance is a temporary type of policy that provides coverage for a set term or specific amount of time. Permanent life insurance, on the other hand, is a lifelong policy that remains in effect until the insured person dies, stops paying premiums, or surrenders the policy.

Term life insurance

Term life insurance is typically sold in lengths of one, five, 10, 15, 20, 25, or 30 years. Coverage amounts vary depending on the policy but can go into the millions. Most people buy term life insurance for a length of time long enough to cover their prime working years. That way, if they die early, they can help a surviving spouse or other beneficiaries meet short-term financial needs like paying off a mortgage or supporting their children through college.

Term life insurance is often the cheapest option, making it sufficient and affordable for most people. However, if you outlive your policy, your beneficiaries won't receive a payout. Additionally, term life insurance doesn't typically build equity in the form of cash savings.

Permanent life insurance

Permanent life insurance policies are further divided into several subtypes, including whole life insurance, universal life insurance, variable life insurance, and burial insurance or final expense insurance.

Whole life insurance is a permanent coverage type that lasts your entire life. The benefit will be paid to your beneficiary whenever you pass away. This may be a more expensive option upfront, but the benefits can be more secure in the long run. Whole life insurance is a good choice if you are looking for guaranteed support for your loved ones or if you are interested in long-term financial planning.

Universal life insurance is a type of permanent policy that has an investment portion, known as the cash value. This portion grows in a tax-deferred account at a stable rate. Universal life insurance allows for greater flexibility, as you may be able to adjust the premium payments and benefit value over time.

Variable life insurance is a type of permanent life insurance with cash value that is tied to investment accounts such as bonds and mutual funds. The cash value can rise and fall based on how those investments perform. Variable life insurance premiums are typically fixed, and the death benefit is guaranteed regardless of how the market fares.

Burial insurance or final expense insurance is a type of permanent life insurance with a smaller death benefit payout. Beneficiaries can use this payout to cover funeral expenses, burial costs, medical bills, and other end-of-life expenses. This type of insurance does not typically require a medical exam, making it more accessible to seniors with pre-existing health conditions.

When choosing a policy type, it's important to consider your budget, the length of coverage needed, and the specific features offered by each type of policy. Term life insurance is generally more affordable but doesn't provide lifelong coverage or build cash value. Permanent life insurance, on the other hand, offers lifelong coverage and often includes a cash value component, but it tends to be more expensive.

Get a quote

Getting a quote for life insurance is a straightforward process and can often be done online. However, there are a few things to consider and prepare before getting a quote.

Firstly, you should know the amount of any outstanding debt, such as a mortgage or loans. You should also be prepared to give specific information regarding any medical conditions, your income level and occupation, and general medical information such as height, weight, blood pressure and cholesterol levels.

It's also important to know how much life insurance you need. This will depend on your financial obligations, dependents' needs and long-term goals. You can use an online calculator to help you estimate this, or work with a financial advisor.

When getting a quote, you will be asked to provide personal details such as your age, weight, height, gender, and information about your lifestyle and medical history. You may also need to provide your social security number, driver's license number, details about your family's medical history, and information about your job and any risks involved.

You can get a life insurance quote online, by phone or in person. Many insurers offer instant quotes on their websites, or you can use a broker or independent agent to get quotes from multiple insurers. It's a good idea to compare quotes from several companies to find the best rate and coverage for your needs.

Prepare for a medical exam

Preparing for a medical exam for life insurance is simple but important, as the results can affect your rate classification, which helps determine your premiums. Here are some tips to help you prepare:

The Week Before the Exam:

• Eat healthily. Limit your consumption of high-cholesterol foods, salt, sugar, and fat.
• Avoid non-essential over-the-counter medications such as antihistamines and decongestants, as these can raise blood pressure and glucose levels.
• Avoid alcohol, as it can negatively impact liver enzymes and cause dehydration.
• Increase your water intake. Being well-hydrated flushes out toxins in your body that may impact your blood and urine samples.
• Get a good night's sleep.

12-24 Hours Before the Exam:

• Avoid strenuous exercise, which can negatively impact your blood pressure, cholesterol levels, and cholesterol levels.
• Go to bed early. Sufficient sleep contributes positively to vital signs such as pulse and blood pressure.
• Schedule the exam for early in the day, if possible.
• Avoid food and drink (except water) if you're required to fast.
• Drink a glass of water shortly before your exam.
• Wear lightweight clothing (for your weigh-in) and a short-sleeve shirt (for the blood draw).

On the Day of the Exam:

Provide any history of problems associated with providing a blood sample.

Finalise your policy

Finalising your life insurance policy is a crucial step in ensuring your loved ones' financial security. Here are some essential steps to finalise your policy:

• Review the policy documents: Before signing the policy, carefully review all the documents, including the terms and conditions, benefits, exclusions, and fine print. Make sure you understand the coverage, limitations, and any additional riders or add-ons included in the policy.
• Provide accurate information: Ensure that all the information you provide during the application process is accurate and up to date. This includes personal details, medical history, lifestyle choices, and any other relevant factors. Inaccurate or misleading information can lead to issues with your coverage or even policy cancellation.
• Designate your beneficiaries: Choose your beneficiaries wisely and clearly specify their names, birthdates, and social security numbers. You can select one or more beneficiaries and allocate specific percentages of the coverage amount to each. You can also name a charitable organisation, your estate, or a trustee as a beneficiary.
• Understand the premium payment process: Familiarise yourself with the premium payment process, including the frequency (monthly, quarterly, or annual) and payment methods accepted by the insurer. Set up a reliable system to ensure timely premium payments to avoid policy lapse or cancellation.
• Seek clarifications and ask questions: If you have any doubts or concerns about the policy, don't hesitate to seek clarifications from the insurance agent or company. Ask questions about anything you don't understand, including policy exclusions, riders, or potential future adjustments. It's important to have a clear understanding of all aspects of the policy before finalising it.
• Sign the policy and make the initial premium payment: Once you are satisfied with the terms and conditions of the policy, sign the necessary documents to finalise the agreement. Pay the initial premium to activate the policy and ensure continuous coverage. Keep all policy-related documents in a safe place for future reference.

Frequently asked questions