UPDATED: Mar 26, 2020
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If you have ever applied for term life insurance or any type of life insurance for that matter, you may have wondered if the company you were applying with was being unnecessarily nosy. You may have thought, ‘Why the heck does my life insurance company care how much money I make?’ Or even, ‘Why do they need to know if I am pregnant when I apply?’ Today we will look at some perplexing questions that life insurance companies present to applicants, and why they ask such questions.
What is your annual income?
Americans have become so sensitive when it comes to this topic! We don’t talk to our friends or family about how much money we make. Are we afraid that it will look as if we are bragging if we do? Or are we afraid that people will look down on us if we don’t make as much as they do? For whatever reason, talking about money has become taboo, and it has crossed over to people being uncomfortable providing this information on life insurance applications.
So why is this information needed? The insurance companies use your age and annual income to determine how much total life insurance coverage you are eligible for. The younger you are, the more years of earning you have ahead of you. Thus they will allow a higher amount of coverage. As you earn more money, a larger policy will be needed to replace your lost income should you pass away.
Have you applied with any other life insurance companies?
When you first hear this question, you may think that the insurance company is just trying to get a leg up on their competition. While this may be of secondary concern, the main reason insurance companies ask this question is to help prevent fraud and to make sure a person does not end up over-insured.
For example, if John Doe applied with five insurance companies at the same time, each for a 2 million dollar policy, he could end up placing in force a total of 10 million in life insurance coverage. This might not be out of line if John Doe happened to be a multi-millionaire. However, it would look rather fishy if he did not have the income or assets to explain the need for all of this life insurance.
It is okay if you are simply applying with multiple companies to accept the best offer. Insurance companies just want to know the total amount of life insurance coverage you plan on putting in force.
When was your last physical check-up?
John Doe never gets sick. He is 65 years old and hasn’t been to a doctor in 10 years, a fact he is extremely proud of and brags about to his family and friends. While it is wonderful that John Doe never gets sick, insurance companies get a little bit uneasy when applicants do not go to their doctor for a yearly physical exam, especially applicants over 60.
Why should you get an annual physical if you feel great and never have a reason to go to the doctor? Insurance companies want proof of your good health. They want to see that you have had all of your age-appropriate screenings, as some diseases will not show symptoms for years or even decades. The underwriters will feel better if you can show them a clean bill of health from your doctor’s office.
Are you pregnant?
Pregnancy, in all of its glory, will bring all sorts of changes to a woman’s body. Your cholesterol levels may increase, you might gain weight, and your blood sugar could change. You might experience complications such as pre-eclampsia, gestational diabetes, and ectopic pregnancy. And these are just a few examples of risks that insurance companies must take into consideration. Insurance companies do not bat an eye for non-complicated pregnancies during the first two trimesters. If an applicant has a high-risk pregnancy or has a history of high-risk pregnancies, it’s a different story. In these cases, insurance companies may postpone the application until after the birth, especially if the applicant applied during the 3rd trimester.
There may be several other questions that come up on your insurance application that stumps you, but rest assured there is a reason the insurance company is requesting the information. If you are ever in a situation where you feel uncomfortable providing certain bits of information then feel free to call your insurance agent. They will be able to tell you if you can get away with not responding to certain questions or offer an explanation as to why the information is needed.