So every once in a while (much more frequently than we'd like) an a-ha moment comes along at the Insurance Pro Blog where we sit and think “why did it takes us this long to think about doing that,” and a handy guide on buying life insurance happens to be just one of those a-ha moments.
We didn't need the help of Mutual of Omaha for our a-ha moment, instead something I read in a report from LIMRA that made me realize this would probably be a good idea.
For those who have never purchased individual life insurance, there's likely a degree of apprehension over the whole situation. What needs to happen? How do you know if your agent is actually doing it correctly? How long is going to take? Which could be followed up by “what is taking so long?”
We're going to help calm nerves, and give everyone a solid guide on how the process is supposed to flow. Hopefully at the end of this, you'll feel more confident with respect to what to expect, and how to handle your own life insurance purchase.
Life Insurance Quotes Mean Nothing
Call me old school if you will, but I still prescribe to the notion that a life insurance “quote” is meaningless. Well, it does help someone reasonably determine that very rough estimates concerning price with respect to one company vs. another. But a life insurance quote is by no means an offer. You may remember from several months ago, I talked about the term quoting game. The fact is, a term quote means nothing. There's a disclosure in the application speaking to this, and no agent is able to guarantee a certain price for insurance.
This idea is true for both term and cash value life insurance. The Life Insurance Industry itself doesn't even use the term “quote” when it comes to hypothetically talking price et. al. The actually industry term is illustration (referencing the sketch of explaining how the policy works). I'll reinforce that, the paperwork that an agent brings to you is intended only to give you an idea how the policy itself works. A “quote” without an offer behind it, means nothing.
What to do with a “Quote?”
To some degree you can compare illustrations for life insurance to make reasonable inferences about what policy might be best for you. On the term side, if you are a reasonably health individual who is buying life insurance and looks at standard rates, you can begin to vet policies that are higher priced at standard. But be careful about this. If ever there were a prudent reason to heed the advice of a knowledgeable agent, wading through likely underwriting decisions is the perfect example.
You don't know if you're likely to be underwritten at standard, preferred, preferred plus, etc. But and agent/broker can develop a much better idea. An agent/broker can also help you develop back up plan if one underwriting decision is quite what you'd hoped for.
What about Cash Value Policies?
Illustrations will be more critical for cash value life insurance (in fact term insurance doesn't require an illustration in most states, cash value life insurance on the other hand requires an illustration or a certification stating that you either were not shown one, shown one that does not comply with what you wish to apply for, or shown an electronic copy of what you wish to apply for and that you understand that the finalized illustration will be provided and must be signed at policy issue).
There are more variables involved with cash value life insurance, and there's more need to compare discuss strategy with your agent.
After Quoting, the Application
After you've run yourself nearly into exhaustion by reviewing quotes/illustrations, the application for life insurance needs to be completed. The applications typically includes the following:
- The general application for life insruance
- A notice and release for medical records under the Health Insurance Portability and Accountability Act (HIPAA)
- A notice that any blood draw will include a test for HIV/AIDS
- A list of health related questions (the length of which will depend on the agent/broker)
What to include in your application
Without getting into too much detail, there are a great many detailed questions that are asked of you in each Life Insurance company’s application. You should answer each question truthfully but keep in mind that everything that you say can and will be used to buy the underwriter to make a decision on your policy.
Many times people will feel the need to elaborate extensively regarding an answer to a question, it’s best to just answer the question as it was asked. This is especially true when completing a phone interview (which is commonly part of the application process) and when talking to the paramedical examiner.
Again…we would never suggest that anyone deliberately misrepresent or conceal information from an insurance company.
But for example, if an application asks have you seen it a specialist in the past two years, and you haven’t but you did see a specialist five years ago for some reason, you needn’t discuss that with the insurance company.
Remember, even though they only asked about the last two years, if you give them information about something that happened five years ago they will still use it and their decision-making process. While underwriting does have “guidelines”, it is still very subjective.
Get out your little black book
On the flip side, if you have seen other doctors in addition to your primary physician, you should always include all of the information for your agent. This will save a great deal of time and processing your application.
As a matter of fact, before you even complete an application for Life Insurance you should make a detailed listing of all your doctors names, addresses, and phone numbers. Also, you should create a detailed account of any prescription medication, the frequency, the dosage, which Dr. Prescribed the medication, how long you been taking it and what condition it’s taken for.
Now the real fun begins.
So you've always wondered why it takes so long to get a life insurance application approved or to get an offer from a Life Insurance Company?
Well, I know that you’d like for the answer to be an industry insider secret that I can reveal to you. But usually the holdup is waiting for your Attending Physicians statements (APS) also known as your doctor's records.
While current laws permit positions to electronically transmit your records two the third party vendors authorized by the life insurance company you have applied with, most doctors offices will not transfer records in this manner.
And many times the HIPPA authorization that you sign to allow the insurance company to obtain your records, does not have the exact wording your Dr. would like to have on file to protect his own hide.
So, the chess match of obtaining your medical records begins and thus artificially extends the link of time it should take to gather all necessary information for an underwriter to make a decision on your life insurance policy.
Sidenote: We could write a whole book of all the things that will hold up the insurance companies from getting your doctor's records. Anything from not actually receiving the requests to “we only send out records every 12th Tuesday” We've heard and seen it all!
Typically, once an underwriter has all the necessary information in front of them a decision can be made in a matter of days.
And honestly, this is where your agents experience separates him from the amateurs. Undoubtedly this is not a game for beginners, in fact, this is a game only understood and best played by grizzled veterans.
An agent has to know when to use vinegar and when to use honey. Quite frankly the nuances are subtle at best when buying life insurance.