While many people may have reservations about sharing some of this information, there are good reasons for the questions life insurance companies ask on the application.
- They need to know your health and lifestyle details to rate your life expectancy
- They need to see whether you are financially justified for the amount of coverage you are requesting
WHY DO INSURANCE COMPANIES ASK ABOUT MY HEALTH?
Most obvious of these is that the insurance company must know details about your current health as well as your medical history.
Some clients complain to me that the application is too intrusive, asking questions about every possible health impairment they've ever had.
What you need to keep in mind are three things:
First - the insurance company may be on the hook for a lot of money upon your passing, so they need to uncover every detail about your current health or pertinent information from your health history.
Second - understand that not all health details are significant to the underwriters.
Insurance companies might ask when was the last time you saw the doctor, and what your reason was for visiting them.
If you answered that you just recently saw the doctor because you had the flu or a respiratory infection, were prescribed antibiotics, and the cough went away with no problems, you don’t need to be concerned.
Keep in mind that just because the insurance company asks about it and you have to disclose something, it’s not something you necessarily need to worry about.
They’re looking for health conditions that would impact somebody’s life expectancy. These would be things like diabetes, cancer, history of stroke, etc.
Third - understand that there is a 98% chance they will uncover it anyway.
Life insurance companies don't just take your word for it.
Even though they want you to give them all of the information up front, they are still going to verify everything.
With the Insurance Company it's definitely a "Trust but Verify" situation.
If you are trying to get traditional life insurance, every application at the least is going to have an MIB Check, Prescription Drug Check, and a MVR Check.
These three reports are typically used to determine if your statements on the application are true.
So, while you might think about hiding some information, don't do it!
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WHY DO THEY CARE ABOUT MY TRAVEL PLANS?
It should also make sense that the insurance company wants to know about any possible risk - either in your lifestyle, your occupation, or travel habits to un-modernized countries where certain diseases may be prevalent.
They also want to know if you are in the habit of engaging in hazardous activities. Even though these have nothing to do with your health, it should be clear to you that insurance companies have to know about these activities.
Because even if you die while racing in a dirt bike race or die traveling into the inner regions of the Amazon jungle, the insurance company has to pay the life insurance proceeds upon your death.
If you apply for life insurance, please do yourself and your agent a favor and don’t be so skeptical about their questions. They’re in business to make money.
They need details about your health and lifestyle habits to accurately rate your life expectancy and any potential death benefits they would have to pay.
They’re not in business to approve policies on people who have extraordinarily risky hobbies or an extraordinarily dangerous health issue.
WHY DO THEY NEED TO ASK PERSONAL, IDENTIFYING INFORMATION?
One of the first questions I learned to overcome as an insurance agent was, "Why do they ask for my Social Security number on the application?" (One client's brother tried to convince him that I was trying to steal his identity!).
That’s a simple question to answer.
They need it to access your medical records.
Also, there should be no opportunity to mix you up with another person with your same name and date of birth.
Granted, this would be a rare occurrence.
But by chance or even fraud, crazier things have happened, and death benefits would be paid out to the wrong people or not paid out at all.
WHY DO LIFE INSURANCE COMPANIES NEED INFORMATION ABOUT MY FINANCES?
Insurance companies will usually ask for your annual income and amount of assets and liabilities, as well as your net worth.
This has nothing to do with approving you for a specific health classification. It has to do with approving you for a certain amount of coverage.
For example, if I make $100,000 per year, I might have a hard time applying for $20 million of life insurance.
I should be able to get about 20 to 30 times my annual income, so $2 to $3 million could be a legitimate request for me, but if I ask for $20 million you should see where they would say, “Why do you need that much coverage? You’re not worth $20 million.”
Keep in mind the purpose of life insurance is to cover the beneficiary and make them financially whole.
The purpose of a life insurance policy is only to replace what was lost financially from the insured person’s death, so this is why they have to ask about your income.
It has to do with qualifying for the face value.
The same goes for why they ask about your assets and your net worth.
Many people purchase life insurance for estate planning purposes, and when you’re looking at large sums of insurance, sometimes they are purchased to pay an estate tax bill or for estate liquidity.
In this case, they’ll want to know about the assets you have.
It’s rare that the underwriter will ask for more details than just a figure for your income or your assets.
They’re not going to ask for a breakdown of the properties you own or ask for the addresses of the properties.
At the most, they might ask for an analysis of the asset classes you own.
For example, if you have a $10 million estate, you might say $5 million of it is in my business, $3 million in real estate, and $2 million in cash and investments - or something of the like.
A website comment came in recently (you can see it below) from Hagan asking why the company asks you very personal information about the "other" policies you may own when applying for coverage from an insurance company. I spend quite a bit of time on the response, so I'll share it here as well.
Here was my answer:
"That's a great question! There are at least 2 reasons.
First, insurance companies learned the hard way that some people apply for (or already own) coverage/policies from multiple different companies. Life insurance is supposed to be used to make the beneficiary whole, not for them to get super rich off someone's death.
Take the example of a 40 year old making $50,000 per year who is married with a couple children. You could make the argument he could qualify for about 20-25x his income, and if you add in some additional coverage for a mortgage, some for the kids' education, he may qualify for around 1.5 million of coverage or maybe 2.5 million on the high side. That amount would make his wife and kids "whole", meaning it will replace his income and other financial contributions, but not much else. That's the point of life insurance.
And that's the TOTAL insurability amount he has across all companies. Now if this same man already has a 1 million dollar policy, companies need to know because of the AMOUNT. If he has applied for another $1 million with 10 other companies, they'll want to know that too.
They'll ask about other applications the insured has applied for, and ask if the insured intends to keep ALL of them if he is approved, or just the best priced, or what have you. Again he can buy maybe 1.5 to 2.5 million of coverage but does not have what insurance companies call "the financial justification" to get more, so companies will actually deny coverage on those grounds.
SECOND part to the question is why would they want your policy #? Seems intrusive, right? This is all about protecting consumers. The unfortunate truth is some agents try to sell policies that don't fit (aren't suitable) for a consumer's needs so they can make a buck.
The insurance industry, therefore, has adopted a set of guidelines for when a client is "replacing" an old policy, and are legally obligated to meet them. This includes notifying the old company (where the policy is being replaced). This gives the old agent or company a chance to call up the insured and remind them why they bought the policy, how they shouldn't replace it, etc. It's the right thing to do and both of these are for YOUR protection."
WHY YOU NEED A LICENSED INDEPENDENT AGENT?
One of the largest advantages you can give yourself is to deal with an independent licensed agent when going through the life insurance purchasing process.
We have been trained and have gone over hundreds and sometimes thousands of applications and different situations with customers.
The reason you want independent is because we represent several companies.
This means that when we understand your medical, lifestyle, and financial situation, we can determine the best insurance carrier for you.
There is no one-carrier fits all situation. Everyone gets underwritten individually and we can assist you to make sure you have the best underwriting outcome and get the best price.
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I know it always feels like the insurance companies can be intrusive on their applications, but understand they’ve been in business for hundreds of years.
They’re not asking you so they can share your information with anybody or so that they can be malicious with it.
They’re asking for it because of qualification reasons--either qualifying for a health classification or qualifying for financial justification.
Those are the two reasons they ask anything about your health or your finances.
I hope this clears up any questions you have about life insurance carriers’ interest in questions.
If not, please feel free to call me at 888-603-2876. I look forward to hearing from you. For a free quote, feel free to use the quote box at the upper right of this page.
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