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What type of financial information do life insurers seek?

By Maricelle Ruiz-Calderon on August 23rd, 2011

financial information You've decided to buy life insurance to protect your family. If something should happen to you, the insurance will cover your monthly mortgage payments, loans, tuitions and other debts. What type of financial information should you expect companies to ask before they approve your policy?

"Allstate collects very limited financial information during the underwriting process for a typical life insurance policy," says Eric Hjerpe, director of risk management at Allstate. "Our primary concern is to make sure the amount of insurance coverage you've requested is appropriate for your annual earned income. The underwriting process for life insurance is different than the underwriting process for an auto or home policy, which doesn't need to consider income."

Allstate may require you to answer questions about your assets and liabilities, if you seek a life insurance policy above $1 million, Hjerpe says, adding that your credit history is not a consideration. "Creditworthiness does not affect the rate on an Allstate life insurance policy."

Steven Brostoff, associate director of media relations at the American Council of Life Insurers (ACLI), confirms that life insurers will ask about income and financial needs to make sure the applicant purchases sufficient life insurance coverage. "While everyone's needs are different, life insurers generally recommend that consumers consider purchasing between seven and 10 times their incomes in life insurance coverage."

Depending on the policy and the amount of coverage, Brostoff says, life insurers may request further information from applicants if questions arise about income. If an application is rejected, he adds, consumers should work with their agents to determine their alternatives.

Information you will need to provide

To determine how much life insurance is enough, on its website insurer Prudential has in place a life insurance needs estimator. The online calculator enables you to estimate the amount of life insurance you would need by taking into consideration your income needs, expenses and assets.

1. Income

To determine income needs, you will first enter the estimated annual income your family would need if you were to die. From that dollar amount, you will then subtract the annual income available to your family from other sources. That would give you the annual income to be replaced in case of your death. You will then multiply that income by the number of years for which funds would be needed to provide income.

2. Expenses

To determine expenses, you will enter funeral and emergency fund expenses, mortgage and other debt and college costs. College costs should take into consideration the annual tuition and years of college for each child. In the expenses section, you will have to calculate the value of all you do. These activities should account for child care, chauffeuring and tutoring expenses. You should consider the value of your housekeeping, food preparation, bookkeeping, home and yard maintenance and parental care.

3. Assets

Under assets, you should add the dollar amounts of your savings and investments, including your retirement savings, as well as your present amount of life insurance.

What else will life insurers want to know?

There are some additional things you will need to tell your insurance company, says ACLI's brochure "What You Should Know About Buying Life Insurance." They include your:

  • Age
  • Medical condition
  • Family medical history
  • Personal habits
  • Occupation
  • Recreational activities

The ACLI recommends that you "always answer these questions truthfully," since the insurer will use this data to evaluate your risks and set a premium on your life insurance coverage. The insurer may request you to take a medical exam. In many cases, the ACLI says the insurer will send a licensed health care professional to your home to conduct the exam.

"You'll pay a lower premium if you don't smoke; on the other hand, if you have a chronic illness, you can expect a higher premium," the ACLI says. When it is time to submit a claim "accurate and truthful answers will enable your beneficiary to receive prompt and full payment."

Maricelle Ruiz-Calderon

Maricelle Ruiz-Calderon has worked as a marketing consultant, professor, and journalist in the United States and Europe. She possesses experience in a variety of sectors, including technology, education, consumer goods and financial services. Maricelle earned a master's degree in journalism from Northwestern University and an MBA from Washington University in St. Louis.


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