3 Obstructions After the Life Insurance Application

I bought a pack of gum yesterday, and the transaction was simple. I didn't have to release my medical records or describe my family history to the vendor. When you buy life insurance, though, matters are different, and here's why: when a company sells life insurance, the economic impact on the company depends on the longevity of the person being insured—whereas a pack of gum costs the people at BubbleYum 12 cents regardless of who ends up chewing it.

Probably the only bump that could take place in the gum-buying process is to be interrupted by a convenience store robbery. When you apply for life insurance, though, a number of things can upset—but hopefully not derail—the process.

---1. Denial of Coverage---

There's no moral law in the universe which compels people to conduct business with each other. If a man on the train demanded you sell him your cufflinks, you'd probably feel no compulsion to comply—unless it were profitable for you to do so. Just so, life insurance companies don't have to sell you anything, and if they deny coverage, it's not because they're bad. It's because they can't afford to sell you insurance profitably. People with higher-than-average mortality risk are often denied coverage or simply don't bother applying. But by working through an independent agency—particularly one that specializes in placing hard-to-place cases—most of these people could find coverage.

Insurance carriers (the companies that actually create insurance policies) have naturally gravitated toward niches where they can find economic advantages. Some are better at covering smokers. Some are better at writing policies for deep sea divers. Almost everybody can get coverage somewhere. Most shoppers can even find a decent selection of companies willing to insure them. (Just make sure that you work with an ethical agent who has experience with a large number of companies, though. Otherwise, you'd be nearly as well off on your own.)

---2. Wrong Rate Class---

After the insurance company considers your application, they'll send you either an offer or a rejection. The offer is an approval of your application. If you sign the offer and send in your first payment, you'll be covered. But what if the offer is for a price that's different from the one you were quoted?

You can blame the insurer if you like, but it's more accurate to blame the industry. When you request a life insurance quote, you see, you supply your own rate class, that is, you choose a class that you think best represents your mortality risk (you may see names like Standard, Preferred, Preferred Plus, and Best). But rate classes, even if they have the same name from one insurer to the next, have different boundaries from one insurer to the next. You might be Preferred at one company and Standard at another. What's more, said boundaries are subject to change. Can a customer ever indicate his/her rate class with 100% certitude?

The truth is that the customer can't be certain. If you get an offer that you did not expect, you have two options: you can accept it and pay the new price, or you can get your life insurance agent on the phone and have him/her go to bat for you. (Ideally, your agent should have been familiar with the underwriting practices of any company where you chose to apply, so he/she could have helped you guess your rate class as accurately as possible. Knowing that, you might opt to seek out a new life insurance agent.) Load your agent up with information that was not on your application but that represents your life expectancy in a good light. Do you exercise? How's your diet? Do you have pets? The underwriters at the life insurance carrier may be persuaded to change your rate class.

---3. Delays---

They say the most time-consuming step in the life insurance application process is the transfer of medical records. The underwriters at the insurance company will request a copy of your records in order to better evaluate your life expectancy. Apparently, it often takes weeks for this task to be carried out. In all, the life insurance application process usually takes a month or two.

Believe it or not, before I worked in life insurance, I worked in medical records (in two different facilities, in fact), and filling a request was a matter of only a few minutes. That's all. If the records were sent by post, they'd be at their destination in just a few days. If the records were faxed, they'd be there in two shakes of a lamb's tail. Therefore, I can't fathom why the life insurance application process takes so long, but regardless of the cause, just be prepared for the inconvenience.

This lengthy step doesn't qualify as a "delay" in my mind because it's planned into every application process. Nevertheless, I'm told that customers tend to think of it as a delay.