You have taken the necessary steps to research all of the options available and have decided to purchase a life insurance policy for the tax-deferred growth, tax-free distributions, and death benefit. But are now asking yourself, “what’s next?”. In this episode of Money Script Monday, Adam breaks down the 4 steps you can anticipate when applying for a life insurance policy.
Click on the whiteboard image above to open a high-resolution version of it!
Video transcription
Hello, and welcome back to another episode of Money Script Monday. My name is Adam Reyna, and today, we're going to be talking about what to expect during the life insurance application process.
I wanted to start off with saying congratulations.
If you're seeing this video, there's a very good chance that you're either considering the purchase of a life insurance policy or you've already applied and you're somewhere along one of these four steps.
Before we get into it, I wanted to kind of give you a way to think about your life insurance contract in a little bit different light, and if you'll excuse me, I'm just going to go ahead and read this.
This is a letter that mentions some of the stuff that your life insurance contract can do.
“I'm a piece of paper, but even more I'm an idea. I'm a promise, I help people see visions, dream dreams, and achieve economic mortality.
I am education for your children. I am savings and access to cash. I am also property that increases in value year to year.
I lend you your money when you need it the most with no questions asked. I can help pay off mortgages, so a family can remain together and stay in their own home.
I ensure fathers and mothers the daring right to live and the moral right to die. I create, manage, and distribute property. I guarantee the continuity of a business.
I'm a tangible piece of evidence that a man or woman is a good spouse or parent. I bring dignity, peace of mind, and security to the latter years of life.
I am the guardian of your family or your business. I am your life insurance contract.”
Again, it's a nice warm and fuzzy way to think about your life insurance contract more than just the transaction, and keep in mind this is really a relationship.
Relationship meaning between you, your trusted insurance agent, and also the insurance company that is going to hold their promises.
Let's go ahead and talk about the process here.
Before we do that, too, I wanted to just let you know that again, because this is a relationship, we're all working together for one thing, and that's protection for your family.
Also, if you're applying for certain types of life insurance, there's lots of those living benefits that are involved as well, so you can benefit while you're still alive.
But at the end of the day, we all need to work as a team to get through these four steps as seamlessly as possible.
Step 1: Application Submitted
Let's go ahead and talk about step one. Step one is the application process, so you and your agent have filled out the paperwork for the specific insurance company.
And what's going to happen is that's going to arrive at the back office.
Your agent typically has an operations team that's going to make sure all the “i”s are dotted, “t”s are crossed, and they're going to go ahead and scrub that application, as it's called, to make sure all the information's there.
All your signatures are correct, all the dates are correct, so at the end of the day, we don't have to come back to you for any missing requirements in this first step.
Step 2: Sent to Insurance Company
TAfter everything looks good, that's submitted to the insurance company.
At that point, it arrives at the insurance company. There's typically a team there, a new business team, that's going to accept that piece of paper.
They're going to do a review of the paperwork as well, make sure everything's there, and then they're going to assign it a policy number.
And then at that point, once everything is in good order, then it's sent to your underwriter.
Step 3: Transferred to Underwriting
Step three is typically where you're going to spend the most time as an insurance application due to some of the requirements that take place here.
Underwriting means that the insurance company needs to assess the potential risk of giving you, half a million, million, sometimes a lot more, sometimes a lot less of that death benefit to your beneficiaries in the event that you pass away.
Here if it's needed at this point, the underwriter is going to look at a medical exam. Typically, that's drawing blood and urine.
That underwriter is going to go ahead and take a look at all the different levels that are measured in the blood and urine test in the exam. And they're also going to look at a lot of other things as well.
They assess your driving record, a lot of times prescription history, and then past insurance activity along with some of the visits to your doctor.
In the event that we do have to do a full medical exam, and sometimes we have to chase down medical records from your primary care physician.
Again, this could take, a good amount of time.
We're all working as a team though, your insurance agent and the insurance company, to really get this policy through as fast as we can.
We really want you to understand that.
At this point, this could sometimes be a month, sometimes even longer at this step in the underwriting due to all of the information that these underwriters need to gather.
One thing I also mention here is that underwriting really is objective.
A lot of people think it's subjective, but at the end of the day, all these different levels and measures that underwriters use are, again, very objective.
Pretty cut and dry, because they've seen hundreds of thousands of cases and seen every type of client, potential client, and the different medical issues that you might have.
The underwriter's always going to give you the benefit of the doubt and going to give you the best possible rating they can, but it's all based on certain guidelines.
So, remember that it is objective, but your insurance agent and the company are really pushing to give you that best rating possible.
Once we get through underwriting at this point, the underwriter gives you a medical approval, so that can be anywhere from preferred best, which is the very top, all the way down to uninsurable.
Hopefully, we come in right as we expected because your insurance agent and the insurance company can do some pre-qualification, so we're not hit with any surprises.
As long as you're honest with your insurance agent, right in the front end of step one, we can get a pretty good assessment of what's going to happen here in underwriting.
There's no need to be dishonest with your insurance agent, we want you to be as upfront and honest as possible, that way your insurance agent and the insurance company can do their best to give you that best possible rating.
We want to avoid any sort of surprises.
With that said, we get our rating right here, so let's say you get a standard non-smoker rating.
At that point, your agent will go back to you, the client, and say, "Hey, we've got an offer."
A lot like any offer with any loan that you might get or any sort of mortgage from a bank. They say, okay, after the review, this is the offer that we can put on the table.
So, at that point you, the client, has to decide, okay, this looks good. I was quoted at standard, I got approved at standard, I give it two thumbs up, let's go ahead and get that policy sent to me.
Step 4: Approved and Delivered
After the approval, it's called issue.
What that means is, once we tell the insurance company to go ahead and issue that policy, what they're going to do is print up the physical policy.
They're going to mail it to your agent, and then you two will meet either online or in person to sign the final documents and that would be you accepting your policy.
The delivery documents, as we call them, are typically a policy receipt, you acknowledging yes, this is what I applied for, this is what I was approved at, and this is what I want.
Any amendments, so if anything changed along the way, not a big deal. It just has to be acknowledged in your contract or your policy.
Then also, we figure out at this point how you want to pay premium. So, are you going to do an automatic draft? Are you going to write a check on a quarterly basis? Can you pay all of the premium for the annual premium right up front?
All the way through step three, you have not accepted anything until this point right here, where you give the final two thumbs up, you sign that policy.
Once that's done, we return that policy to the insurance company along with the delivery documents that I just mentioned, and your first premium.
Once your first premium gets placed into the policy, congratulations, you've got yourself an insurance contract.
You've got that death benefit, you've got all those things that we mentioned in that letter to start this episode of Money Script Monday.
At that point, we can still make changes, but we want to get this in force and we want to keep that plan going as smooth as possible.
So, we don't always want to make changes, we want to try and stay on plan as much as we can, but then keep in mind, like I said in the beginning, it's a relationship.
Your agent's going to meet with you every single year around your policy anniversary to make any changes at that time.
Did you get married? Did you get divorced? Did you get a big raise at your employer? Did you have more children?
These are things that as a relationship with your agent you need to mention because we can change your policy to make sure it's as beneficial as possible for you and, of course, your family.
A quick review, we get that application in, we get it submitted, we get it reviewed, we make sure everything looks good, gets to the insurance company, gets to the underwriter, and then finally, we get the policy for delivery.
And a little asterisk here at the bottom, on average these policies take about 45 days.
The shortest I've ever seen a policy go through is about a week, but let's set the expectation that it should be about a month.
This, again, is a relationship that we want to keep in force as long as possible.
We want to make sure we have all the information there so we can keep our promises and we can make sure that contract is there for your family when they need it the most.
Any questions that you might have, if you're in this process or thinking about the process, please reach out to your insurance agent.
They're more than happy to answer any questions and make this go as smoothly as possible.
Thank you, again, for attending Monday Script Monday. My name is Adam Reyna.
Additional Links