Do you qualify for life insurance? Insurability comes with a lot of misconceptions. One of the common reasons people overlook insurance, not only as a means of financial protection and certainty, but also as an investment tool is the assumption that they aren’t eligible due to a medical condition, lifestyle factors, or previous denial of coverage.
There are many factors that determine whether or not you are insurable. Underwriting standards (the process of determining if you qualify for life insurance and how much your premium will be) vary between insurance companies. At Paradigm Life, our Wealth Strategists work with a variety of top-rated mutual insurance companies to find an insurance policy or annuity product to fit your lifestyle and financial goals.
What do you need to do to qualify for life insurance?
Write down your goals
As with anything you buy, it’s important to know why you’re buying it. Before you consider any type of insurance, know why you’re purchasing it. What do you want to achieve with your policy?
Are you looking for a way to protect your family financially incase of an unexpected loss? Are you using insurance as an investment tool to grow your wealth? Are you looking for more income in retirement?
Write down your top three financial goals. This will not only help you determine what you need to do to qualify for life insurance, it will help you determine which type of insurance will help you achieve your desired outcome.
Determine what type of insurance you need
Term Life Insurance
If you’re paying off a temporary expense, like college tuition or a mortgage, for which your family would be significantly affected should you unexpectedly pass away, term life insurance might be the way to go. Although it’s relatively easy to qualify for term life insurance and premiums are typically lower compared to any other type of life insurance, the benefits are lower too.
Term life insurance doesn’t offer a living benefit. It will only protect your family with a death benefit if you pass away within the specified time frame of your policy. Terms for this type of insurance are typically as little as 5 years, and run in 5-year increments up to 30 years. If you outlive your term, you receive no return on your investment.
Premium payments on term life insurance typically aren’t flexible—you pay either monthly or annually—and the can increase with age. If you purchase “level premium” term insurance, you’ll lock in your rate. But if you opt for “annual renewable” term insurance, you essentially enter into a year-by-year contract. This has the benefit of offering shorter-term coverage, should your insurance needs suddenly change, but subjects you to potentially higher premiums each renewal period, as you will have to re-qualify for life insurance annually.
Convertible Term Life Insurance
Convertible term life insurance offers the same benefits as traditional term life insurance, but this type of policy comes with an option to convert to whole life insurance in the future. Typically, you have up to 10 years within which you may exercise your option to covert to a cash value whole life insurance product.
Because you won’t be required to take an additional medical exam when you convert from term life to whole life, you can lock in a great premium guaranteed not to be affected by your health—should something happen within the convertible term of your current policy. Therefore, convertible term can make it easier to qualify for whole life insurance.
This option is ideal for someone looking for temporary coverage now, but who would like to have the added living benefits of whole life insurance further down the road, like cash value, policy loans, and tax advantages.
If you don’t convert your convertible term life insurance policy within the specified term, the benefits of your policy will be the same as traditional term insurance. You won’t receive any return on your investment or death benefit payout if you outlive the policy.
Convertible term life insurance can be slightly more expensive than traditional term insurance, but the premium savings you’ll be able to lock in for whole life insurance down the road can be well worth the additional cost.
Whole Life Insurance/Permanent Life Insurance
Whole life insurance offers both a death benefit and living benefits, regardless of how long you live. This type of insurance policy covers you for life, so you never have to gamble on whether or not you’ll outlive your coverage. The benefits of whole life insurance may include:
- Tax advantages
- Tax-free, guaranteed interest
- Tax-free dividends
- Tax-free retirement income
- Tax-free policy loans
- Tax-free death benefit
- Estate tax free
- Earns guaranteed cash value you can access at any time
- Historically pays out dividends
- Not subject to probate or creditors
- Diversified from market volatility
As an investment tool, a dividend-paying whole life insurance policy is the safest way to grow your wealth. Compared to other investment options, whole life gives you control over your money, increases liquidity, and can improve cash flow. Mutual life insurance companies have a historically consistent record of paying out dividends on policies and the cash value of your policy earns interest, even if you take a policy loan against it.
Qualifying for whole life insurance can be slightly more involved than qualifying for term life insurance, but the process is still relatively easy. You usually will be required to take a medical exam. The healthier you are, the better your chances of qualifying and receiving a favorable premium.
Whole life insurance premiums are higher than term and convertible term life insurance. Buy you have to remember you’re not just paying for a death benefit (that may or may not payout, depending on the term of your policy). With whole life insurance, your paying for guaranteed insurance for life, as well as tax advantages that help you keep more of your hard-earned money, and a built in savings and investment tool. In a sense, it functions as both your life insurance and your bank savings account, but with a better return on your investment.
With whole life insurance, your premium payment doesn’t go up every year. You lock in a premium and you can choose when you pay it. You also have the option of adding a Paid-Up Additions rider onto your policy, allowing you to contribute more money to help your cash value grow faster. Your dividend earnings may by funneled back into your policy, helping lower your premium (and eventually covering it completely)!
Universal Life Insurance
There are 3 basic types of universal life insurance:
Guaranteed Universal Life
Like whole life insurance, guaranteed universal life insurance guarantees your beneficiary a death benefit. You don’t have to worry about outliving the term of your policy or your family being provided for.
Guaranteed universal life doesn’t have the cash value or other living benefits and tax advantages of a whole life policy.
Because its only benefit is a guaranteed death benefit, your guaranteed universal life premium will be much lower than whole life insurance, but more expensive than term insurance. Additionally, your payment schedule may not be as flexible as it could be with whole life insurance.
Indexed Universal Life
Indexed universal life is similar to whole life insurance in most aspects, but has one major difference. Rather than earning interest and dividends paid out by a mutual insurance company, your cash value grows based off a stock market index.
It’s riskier, but your reward may be higher than whole life insurance depending on market performance. You also have to factor in your policy’s participation rate and your policy’s cap on gains, both of which can limit your earning potential.
Premiums for indexed universal life vary and payments tend to have more flexibility than whole life insurance, so long as the cash value of your policy is sufficient to cover your insurance.
Variable Universal Life
Variable universal life insurance offers a death benefit and ties the cash value of your policy to investment accounts like bonds, equity accounts, and money market accounts.
Like indexed universal life, variable life insurance is also risky. Your cash value only benefits when outside investment accounts benefit. While you can earn large gains, this type of life insurance tends to have the highest management fees, which can drastically cut into your earnings.
Premiums for variable universal life are generally flexible. Your death benefit may fluctuate depending on how and when you pay your premiums.
Where whole life insurance functions more like an insurance product with a built in bank savings account that earns guaranteed interest, variable and indexed universal life insurance function more like insurance products with a built in market-based account where earnings fluctuate dependent upon market performance.
Collect your application information
Regardless of the type of insurance you choose, an application is required. The application may ask questions about the following:
- Date of birth
- Employment information
- Financial information
- Medical history for you and your family
- Existing life insurance policies
- Lifestyle habits that influence your risk
- High-risk hobbies
- Drinking habits
- Recreational drug use
- Travel frequency
Talk to your doctor about qualifying for life insurance
Whether or not you need a medical exam to qualify for life insurance is most often determined by your age, your current health, and the amount of your policy. Talk to your doctor before applying for life insurance to discuss what steps you can take now to improve your medical exam results, thereby improving your chances of qualifying for life insurance and receiving a favorable premium.
If you’re required to take a medical exam, our team at Paradigm Life will help you schedule your exam. We’ll also help you take care of any additional tests and/or paperwork.
Improve your driving
As part of their due diligence, your insurance company’s underwriting team will check your driving record. The safer you are when driving, the more likely you are to qualify for life insurance and receive an affordable premium.
Skip happy hour
Your insurance company’s underwriting team will assess your alcohol intake to determine if it poses a risk to your health, which affects your insurability. Excessive drinking, particularly if it you’ve had any driving violations while under the influence, will affect your insurability and your premiums.
Smoking can drastically affect your life expectancy and makes you significantly more expensive to insure. The longer it’s been since you’ve smoked, the less expensive your premium is likely to be.
Being overweight takes a toll on your health because it increases your risk for a variety of diseases, impacts your blood pressure, and can contribute to higher cholesterol. Eating healthy and getting regular exercise will benefit your ability to qualify for insurance.
Consider life insurance riders you qualify for
A rider is an additional type of insurance you that can be added certain types of life insurance policies. Some riders, like paid-up additions, increase the cash value of your policy quicker. Other riders, like guaranteed insurability, allow you to purchase additional insurance at your current rate, regardless of future changes to your health.
Don’t put off applying for life insurance
Assuming your health and lifestyle don’t currently pose any barriers to insurability, it’s best to take advantage of your good health and age now will get you the best premium rate.
If you’ve been turned down due to a medical condition or lifestyle factor in the past, don’t be afraid to reapply. Changes in your condition and lifestyle may improve your eligibility to qualify for life insurance.
Don’t give up if you haven’t been able to qualify for life insurance. One of the smartest and most helpful things you can do is speak with a Wealth Strategist.
At Paradigm Life we can customize a policy to fit your financial situation. Our expert Wealth Strategists are available to answer your questions and show you customized illustrations, outlining an individual plan of action to help you achieve your goals. , no strings attached.