Life Insurance Financial Underwriting

Life Insurance Financial UnderwritingWhen you apply for life insurance, every company will ask about your annual income because they need to justify the amount of life insurance coverage you’re applying for.

While the purpose of an application might be clear – family protection, juvenile insurance, buy sell or key person – the death benefit must align with your financial situation.

This means your annual income, household income, assets and liabilities are required on most underwritten life insurance applications.  The life insurance companies don’t verify any of this so you won’t need to provide any documentation and most people “ballpark” their assets and liabilities.  However you do need to provide this information on a life insurance application.

If the life insurance is for business purposes, they’ll require the same type of information and even more detailed information depending on the carrier and the exact purpose of coverage. Just know that this information is required for all underwritten life insurance carriers.

Having trouble qualifying for the amount of life insurance you want?

Many people searching for life insurance financial underwriting topics are doing so because they’re trying to qualify for a bigger amount of coverage than an insurance company will issue them.  Here are some tips that can help you get the coverage you need.

Tip #1: Ask your agent to draft a cover letter.

A “cover letter” is simply a letter drafted by the agent submitting your application painting your financial situation in the most favorable light possible.  Underwriters look at an application, medical records and medical exam results to determine qualification – a cover letter submitted on top of your application adds a story and humanizes the case for an underwriter.  Great life insurance agents write great cover letters for their clients.

Unfortunately, most life insurance agents have no idea what to include in a cover letter, and when one is submitted, it focuses on case details that are more akin to trivia than the salient facts of the case.

So what makes a great cover letter?

A description of your job/business, what you do, how long you’ve been doing it.  If household income is involved, provide details of the spouse too.  You want to talk about why you need more coverage than normal. Do you have a special needs child? Debts or circumstances beyond what’s considered normal? I’ve seen both of those situations get exceptions recently.

A good cover letter for life insurance financial underwriting will also discuss specifics like your liquid assets, your primary residence equity, how much life insurance coverage you currently have (if it’s group coverage, many companies won’t count that against you).  That’s on top of the normal information like your income and net worth.

Tip #2: Look at different life insurance companies

Companies base their financial underwriting guidelines as multiples of income based on your age.  Each company has different guidelines for different age groups. Some factor in net worth and some don’t.  In other words, if one company won’t give you the amount of coverage you want, even after a cover letter – find a different company to work with.

Life insurance companies publish their underwriting guidelines for licensed agents to review.  Your life insurance agent can comb through these guidelines quickly as they’re easily accessible.

They also allow you to either speak with an underwriter or email an underwriting desk (without your name attached to it) to “pitch” your financial situation and see what it would take to get you your desired amount of life insurance coverage.

Tip #3: Don’t be afraid to get a second opinion

If you truly believe you should be able to qualify for the amount of life insurance you want and you’re just not getting the answers you want, then look for a second opinion.  Maybe your agent’s cover letter was poorly done or even non-existent.  Maybe your agent only had access to a couple of life insurance companies (there’s 100’s of life insurance companies out there).

So if your agent can’t get it done, seek out someone else – an expert in financial underwriting.  Just do a search online and you’ll find some (we’re one of them).  There’s a lot of life insurance agents that don’t have the experience to get these types of challenges through underwriting. A lot of life insurance underwriting is about relationships with underwriters or companies that can make exceptions.

How financial underwriting may effect your life insurance

Here is a quick summary of how financial underwriting may effect your life insurance:

Family Protection
Family protection coverage provides income replacement/estate conservation for your spouse and/or children. It’s typically calculated as “multiple of income”. The younger you are, the higher the multiple. Each company has different multiples, so if a life insurance company is limiting you on the amount of coverage you’re seeking, have your agent shop around.

While the primary focus is income when calculating personal insurance needs, net worth may also be considered.

Juvenile Insurance
Juvenile Insurance amounts generally range from $10,000 to $50,000 but amounts up to $250,000 are not unusual. If you’re applying for a high amount of coverage on a child, typically the parents and all siblings must carry equal coverage or have a very good reason to justify the amount. The parents financial situation must also support the higher face amounts on the children.

Buy Sell Coverage
Buy-Sell life insurance seeks to preserve existing assets from forced liquidation when a business owner or partner dies. Life insurance companies will need to know the net worth or market value of the business along with each owners’ percentage interest and verification that all owners are either insured or seeking coverage for their proportionate share of the business.

Key Person
Key Person coverage insures against the loss of a key person’s expertise, skill and revenue producing ability for a business. As with family protection, key person coverage is based on a multiple of income typically ranging from 5-15, depending on your age.

The biggest key in qualifying for a higher death benefit if you’re on the cusp of the underwriting limits is to have your agent draft a “cover letter” explaining how the amount of individual life insurance was derived. If it’s logical, well written and detailed, then the underwriter will have no problem approving that amount.

If you have any other questions regarding financial underwriting for life insurance, please don’t hesitate to contact us.

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About Jeff Root

is the owner of He's an independent life insurance agent who has helped 1,000's of consumers purchase life insurance online and over the phone.

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