Buying Individual Life Insurance Plans
Today’s consumers can purchase life insurance online, through the mail, or over the phone. They also have the option of sitting down with a local life insurance agent or other financial professional. Some applications only require answers to a couple of basic questions, while other applications can take an hour to complete. The right choice really depends upon your needs and situation. This should be clearer as you read about different types of policy applications and situations, but before you begin, there is one major term you need to know before you get started: underwriting.
Underwriting refers to the process that an insurer goes through to determine if an applicant is eligible for a particular policy, death benefit amount, or even rate class. The insurance company employee who handles this process is called an underwriter. Their job is to determine your risk level and coverage qualifications. There are three different types of underwriting processes:
Fully-Underwritten vs. Simplified Issue vs. Guaranteed Issue
You probably expect to answer some health questions on your application. When it comes to determining your life insurance benefits, there are three basic types of underwriting levels: Fully underwritten, simplified issue, and guaranteed issue.
Expect to answer several questions about your current health, personal history, and even your family’s health. You might even need to submit to a medical exam, get a physician’s statement, or supply a blood or urine sample. The advantage for people in good health is that this is usually the only way to get approved for preferred rates. A little inconvenience can save you a lot of money, and it might be the only way to qualify for really large death benefits.
People with a healthy lifestyle and no serious health issues might save money by taking out a fully underwritten policy. The insurer picks up the bill if they request any exams. If you do not smoke, watch your weight, and have no prior medical conditions, you have a good chance to qualify for better rates. This might be the only way to qualify for large face value policies even if you cannot qualify for the cheapest rates.
Simplified Issue Policies
Compared to fully-underwritten policy applications, providers will only ask a few health questions before granting you a simplified issue policy. The questions have been designed to only weed out applicants who have serious illnesses. If you could have qualified for a preferred rate, the convenience might be costing you money. Since life insurance companies have to base their decisions on less information, they will assume the average customer falls into a riskier rate class. Maximum policy death benefits limits might be modest too.
Keep in mind, people with less healthy habits or a prior medical issue might never qualify for the very best rates anyway. It might not be worth it to go through the trouble to answer several questions, have a medical exam, and then wait several days for an answer. The application process for simplified issue policies may be very quick, and some insurers will answer within a day or two.
Guaranteed Issue Policies
Generally, guaranteed issue policy applications will ask little to no health questions. Insurers use a graduated death benefit instead of underwriting. The full death benefit might not be payable for 24 to 36 months. Some of these policies will pay a percentage of the death benefit or refund premiums if the insured person dies before the waiting period is over. Maximum policy death benefits are usually fairly small.
Of course, guaranteed issue policies will typically cost more than fully-underwritten or simplified issue policies. The increased risk gets built into the rates. They also usually do not offer an immediate death benefit. Guaranteed issue policies are often advertised to seniors as a way to get life insurance without answering any health questions. Lots of relatively healthy older people might quality for cheaper policies, so frugal people might shop around.
If you want millions of dollars in coverage, you may need to submit to a more complete underwriting process. If you want a policy worth a few hundred thousand dollars, say to cover a home mortgage, you might be able to use a simplified issue application. Guaranteed issue policy limits usually stop at a few thousand dollars.