Money Management Newsletter: Insurance
Purchasing life insurance
Are medical tests necessary?
Many people believe that filling out an application
and paying a premium is all that is involved in purchasing a life insurance
policy. In some circumstances this may be the case but generally can be
a bit more complicated.
The process by which Life Insurance companies determine
the people who qualify for coverage is called underwriting. Underwriting
is based on three areas: health, finances, and lifestyle and as such,
each can have an effect on whether you are approved for life insurance
For coverage amounts under $100,000, an applicant will
usually be required to fill out a questionnaire that will provide adequate
details of the condition of their health. Applying for life insurance
in amounts up to $500,000 normally requires a para medical, urine and
HIV test in addition to the questionnaire. If the applicant is over the
age of 60 or if the coverage amount is in excess of $500,000, the insurance
company will often request a doctor's medical exam.
People who are in good overall health and have few or
no lifestyle risks (smoking, mountain climbing, scuba diving etc.) will
usually be accepted at standard rates. Financial underwriting ensures
that the individual qualifies for the amount of coverage applied for.
For example, an individual who applies for coverage equal to over 20 times
their yearly income would more than likely be denied.
This however does not mean that insurance isn't available
for those not meeting the above criteria. For those who have health problems
or those who have high lifestyle risks, they may still be able to obtain
coverage with an additional premium cost. This type of coverage is known
as a rated policy.
Individuals looking to purchase life insurance coverage
should take the time to review their options to ensure they are getting
the appropriate policy and coverage amount to suit their needs. Regardless
of whether a questionnaire or physical is required, life insurance applicants
should report all pre-existing health conditions to the insurance company.
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