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The Money Management Newsletter: Insurance Products
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 coverage.

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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