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Life insurance is one of the unique and helpful concepts that has been devised in modern times. It is a promise, backed by a one-way, or unilateral contract, to pay a set sum of money to a beneficiary when an insured person dies.
That may not sound too spectacular on the surface, but it is a contract that the life insurance policy cannot change once the policy is effective.
Most life insurance policies have a two year period where a suicide will not qualify for a death claim, and if there were any misrepresentations on the application for the insurance, the company could deny the death benefit claim.
However, once the two year period passes, the life insurance company must honor its contractual obligations.
Learn more about life insurance below and make sure to use our free comparison tool above!
How does the life insurance company keep from going broke?
Life insurance companies operate by the “Law of Large Numbers.” The very fact that not everyone dies at the same time, makes it possible for the life insurance company to continue to collect premiums on those policyholders who are still living.
The premiums collected are used to pay expenses and to invest in reserves which are required by law to be available for future claims.
Life insurance companies hire actuaries who are mathematicians who specialize in the calculation of risks for insurance companies. The risk of a person dying prematurely or mortality is calculated from mortality tables.
These tables show how many people in a pool of 10 million people, for example, will die at a given age.
This procedure, along with the gathering of certain facts from a prospective insured, allows insurance companies to charge a specific premium for a particular age, make a profit, and have enough money to pay claims.
The Life Insurance Application
The life insurance application is a necessary document that provides written information about the applicant for the life insurance coverage.
It is a very important body of data upon which the life insurance underwriter in the home office will base the decision as to offering coverage to the applicant.
The application legally becomes a part of the life insurance contract, and a copy of the application document is included in the policy when it is delivered to the insured, once he or she is granted life insurance coverage.
The applicant for the life insurance coverage will answer a list of prescribed questions about his or her background, occupation, income, family status, habits and the current state of health.
Health information is quite detailed and the applicant must list any previous specific health conditions have occurred in the past, and the current disposition of those conditions.
– The Application Process
The application is usually completed by an insurance agent or broker who works closely with the applicant in determining the amount and type of life insurance involved.
With the modern digital capabilities available, more and more applications are filled out by the applicant online and made legal with an electronic signature.
Many agents work entirely over the phone and will help guide the applicant through the questions.
A screen-sharing process can be utilized where the screen can be turned over to the applicant so the questions can be checked yes or no, and other information can be supplied by the applicant.
– The Importance of the Application
The life insurance application is the first real bank of information that the life insurance company underwriter has about the applicant for the life insurance.
All of the application questions are vital to making a decision regarding the risk that might be posed if that particular individual were to be insured.
The agent or broker will point out to the applicant that all of the questions must be answered truthfully and that any question answered otherwise could void the policy.
The two-year incontestable clause and the suicide clause is explained to the applicant as well. The incontestable clause states that the insurance company has two years from the policy effective date to contest any incorrect answers or statements on the application.
Information Needed On The Life Insurance Application
This part of the application is also called the Part 1. The full name, first, middle and last name are required, as is the current residence address and how long the applicant has lived at that address.
The require information would be:
- date of birth
- place of birth
- social security number
- annual income
Also the applicant’s employer, and how long the applicant has worked for that employer.
Previous addresses and employers are required for the past five years. A question regarding the type and amount of life insurance desired is included. A question asking if other family members are requesting coverage is also included.
There are questions that regard moral situations. Questions about the use of tobacco, alcohol, and drug usage are included. There may be a question about a person’s background as far as being arrested, and the reason for that arrest.
All of this information must be accurate. It is sometimes amazing how applications can be received with similar names and information that is so close that one number in the social security number can identify and tell the two people apart.
– Health Information and Background
The next part of the application has to do with the health of the applicant. There is a series of questions that cover just about every condition and illness that could happen to a human being.
They are phrased in the manner of, “Have you ever had . . . -” and then the applicant must answer yes or no. If the answer is yes, then details must be divulged in a separate section below the list of questions.
In the section where the application asks for more details, an explanation of the disease or accident is required along with the date, the name, and address of the doctor or medical facility involved, along with the address and phone number.
– The Medical Exam
If the face amount of the life insurance exceeds a certain amount, the applicant may be required to have a medical exam by a paramedical person or a doctor. In this process, a blood sample is taken, as well as a urine sample.
The applicant’s blood pressure is taken and all of the health questions are asked again. The life insurance company pays the fee for the exam and the medical information is sent directly to the life insurance company.
The two parts of information, the personal background, and the health information make up the essence of the application for life insurance.
In addition to these two areas of data, the applicant must also agree for the life insurance company to complete any background search deemed necessary by the company.
Once all of this information is received by the underwriter in the home office, a decision is made about the applicant’s insurability and a policy is issued, rated with an increased premium or declined, based on this information.
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