Tuesday, September 20, 2016

Why It's Not Always Easy to Buy Life Insurance on Your Own

Many employer groups tell me that if their employees want permanent life insurance they can just go buy it on their own. The problem is that many employees can't qualify for life insurance because of their medical history or for other reasons (like being a pilot or a race car driver for example).

In this article, I wanted to talk about the process you have to go through in order to buy life insurance on your own and why my eliminating these requirements is a big deal to your employees.

When you decide to buy life insurance, your first step is usually to contact an insurance agent. This might be the person that does your auto insurance, a financial advisor or a good friend.

Whoever you contact will ask you a few basic questions like how old you are, whether you use tobacco, how much life insurance you want and what type.

Once those basics are covered, the agent will usually tell you how much you can expect to pay for a policy. This is called the premium.

Your "Estimated" Premium

At this point, whatever premium you are told is an estimate. The actual cost of your policy will be determined by the underwriting process. When it's completed, you'll be told the actual premium if you qualify.

This premium will be based on what the insurance company considers appropriate for your current health status.

So if you have high blood pressure, this will be a rate that people with high blood pressure would get. The important thing to remember here is that you might pay more than others based on your health. It also means you might get turned down if the insurance company doesn't like what it finds out about your health.

This is important to know up front because a lot of agents will give you a premium for people that are in excellent condition. But if you are not in excellent condition, that's not the rate you will get if you do get approved. This means you might get quite a surprise when you find out the actual rate.

So how do they determine the rate you will get?

Eight Underwriting Requirements You Might Need To Do To Buy Life Insurance

After you get a ballpark figure of what your premium might be, it's time to ask the insurance company for a policy and find out exactly what the insurance company needs to make you an offer for life insurance.

Every insurance company has different requirements. The amount of life insurance you want along with how old you are will determine what's required.

In general, here is a list of eight things you might need to do to find out if you can get a life insurance policy from that company.

  1. Complete an application The first step is to apply. You apply by filling out an application. One of the life insurance applications I saw recently had 42 pages in it's life insurance kit. Of those, 12 pages were considered part of the application. Most of the time, your agent will help you fill out the application. In this application, there are lots of questions. The basics like who you are, how old as well as where you work are in there but there also questions about your activities, your health and other financial questions. Sometimes an application is all you need to complete for the insurance company to let you know if they can give you a policy.
  2. Attending physician statements (APS) As part of the application, the insurance company may request information from your doctors to find out what medical conditions you've been treated for as well as what kind of medications you might be on.
  3. Motor vehicle report A motor vehicle report will let the insurance company know how risky a driver you are. Do you have a number of speeding tickets or DUI's? This is information the insurance company will want to know.
  4. Para-med exam A para-med exam is when someone comes out and sees you specifically to satisfy certain medical requirements. These will be the detailed questions about your health that you might have answered in the application. You can expect to be weighed, your blood pressure checked along with other medical requirements I've listed below.
  5. Blood and urine During your para-med exam, you may be asked to provide blood and urine samples. These samples will provide the insurance company with lab results that can reveal things like high cholesterol, whether you smoke or have drugs in your system.
  6. Electrocardiogram (EKG) Depending on your age, you might also have to get an EKG to find out if your heart is working properly. 
  7. Inspection reports Insurance companies can also request inspection reports. These reports can detail more information about your lifestyle. If it's determined that you like to race cars or do other hazardous activities that you might not have revealed on the application, the insurance company can find out with reports like these. If you have ever seen the movie "Along Came Polly", you saw this process in action.
  8. Any thing else the insurance company might ask for An insurance company can ask for other things as well. The higher the amount of insurance or the older you are, the more requirements you can expect. This might include a cognitive test for example or detailed financial records.

The list above is a what could potentially be requested. Your insurance agent will let you know what is needed to make sure it's completed.

Once these requirements are met, you'll receive an offer from the insurance company either at the premium you were told, at a higher amount or in some cases a lower amount. 

You might also be declined for the life insurance you applied for.

Your Doctor and Your Insurance Company Look At Your Health Differently

I have found that if you ask someone if they have any health issues, many will say no. But when you start asking questions, you find out they've had a heart bypass surgery and a pacemaker put in. 

I think this happens because our doctors minimize our conditions because they know they can be managed with medications. It also makes us feel better. People will tell me, well yeah, I have this condition or that condition but it's under control.

Keep in mind that insurance company looks at you differently than your doctor. They are putting real money on the line that they have to pay contractually. They don't take the responsibility lightly.

Imagine for a moment that you were the insurance company. You'd certainly understand that most people have a hard time taking care of themselves the way the should and if it was your own money on the line, you'd be a lot more conservative too.


Many of the decision makers I talk with are healthy. They haven't experienced being charged more than other people or worse being turned down for life insurance.

But in all of these employer groups, I know that many employees would benefit greatly from getting the above requirements waived so they could get permanent life insurance.

If you are a decision maker at an employer group, step back and think for a moment about employees you know personally who have chronic conditions like asthma, high blood pressure, diabetes, heart problems or a number of other medical conditions.

And if you can't think of anyone specifically, have a look at your health insurance premium and ask yourself why is the premium so high? That's because there are employees in your group using the health insurance to get treatment for those conditions.

Those are the employees that you can help with my assistance.

If you have any questions or comments, let me know in the comments below.

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Michael is a champion of guaranteed issue for employees in the workplace. He's been an insurance agent since 1992 and has worked with thousands of employees.