This article is all about my experience in purchasing a life insurance policy and the underwriting process. If you’ve been interested in doing that for yourself, but feel intimidated by the process, then you should read this article. It sheds some light on what you can expect during the purchasing and underwriting process.
Disclaimer: Sorry, but before I talk about my life insurance experience, I must disclose a couple of things. I’m a fee-only financial planner. My firm, Westchase Financial Planning, is a Florida-based registered investment advisory firm. You can look up my registration document (also known as an ADV) here. I do not have an insurance license, and cannot provide specific advice regarding insurance policies. My clients receive unbiased advice based upon my analysis of their particular situation. However, if I make a recommendation regarding insurance coverage, I must refer that client to a licensed insurance agent in order to implement that recommendation. I receive no fees, commissions, or other compensation for such recommendations. The companies that I discuss in this article, Low Load Insurance Services, USAA, & Prudential, have not compensated me for this article, nor is this article an endorsement for their services. The insurance policy quotes in this article are for information purposes only, and should not be considered as an advertisement. There is no guarantee that the quotes & pricing that I received are representative of quotes that another person would receive, as there are many variables that impact the pricing & availability of insurance policies.
Know the Type of Life Insurance You Need
I’ve written a series of articles about protecting your post-military income with either the Survivor Benefit Plan or term life insurance. In my situation, my wife and I decided that a term life insurance policy was a better option than SBP. In the spirit of putting my money where my mouth is, I’m going to walk you through the process that I used to secure a life insurance policy, step by step.
Again, I will strongly state that you need to independently determine which course is right for you. It might be SBP, an insurance policy, both, or neither. Again, I cannot guarantee that your insurance experience will be like mine. This article exists to provide some perspective for your consideration.
Learn a little more about life insurance from LifeHappens, a non-profit organization dedicated to helping people make the right insurance decision for their situation.
Background – Choosing Between SBP & Term Life
Why we decided against SBP: As I mentioned in a previous article, my post-military pension will be approximately $4,000 per month. Let’s assume that SBP payments are capped at 6.5% of the pension. This means that we would spend approximately $260 per month to protect this income under SBP. This is quite a bit more than the insurance policy that we secured, but I’ll get to that a bit later.
Most importantly, my primary concern is not my wife outliving me in our golden years. If I live to be 60 or older, I am fully confident that we will be financially independent, and that we will no longer need our pension income (although it’s certainly nice to have). My concern is about what would happen if I die before we become financially independent. We have 3 kids and a mortgage payment. Calculating the SBP payout would give my wife about $2,200 per month…that’s just about our mortgage payment. Having SBP for the rest of her life doesn’t do my wife much good at that point.
Since I did the math as outlined in my SBP vs. term life insurance case study, I decided to go with a $1.5 million, 30 year life insurance policy. You can read more about my rationale in the article. However, I feel that this number is appropriate for my family’s financial needs. Also, I fully believe that by the end of a 30 year term, we will have long since achieved financial independence, and will not have any need for insurance to protect my pension.
Why I decided to obtain my policy now
I’m still a year out from my military retirement. So why did I start getting my insurance policy this far out? Two reasons:
- An early start allows me to focus on other time-sensitive priorities. I expect a lot on my plate, and this is one item that I can cross off my ‘to-do’ list.
- Perhaps I’ll file a VA disability claim. I don’t know what conditions might qualify me for a disability rating. However, the underwriting process involves asking about disability claims. If I file a claim and then apply for insurance, I have to disclose that. This might raise a red flag for further investigation. However, if I haven’t filed a claim yet, the insurance company can review my medical record all they want. I don’t know if this truly matters. I just don’t see the need to make the underwriting process any more complex.
Step 1: Getting Started—Just Get a Quote
I won’t lie to you…buying SGLI is pretty easy, but buying a life insurance policy can be pretty intimidating. Getting started is the hardest part. I started by contacting the insurance agents at Low Load Insurance Services (LLIS), and asking for a quote. LLIS keeps their costs down by working exclusively with fee-only financial planners, who otherwise would not be able to provide insurance solutions to their clients. However, you can do the same thing yourself by going to any number of insurance websites, such as USAA’s Term Life Insurance website to get a quote.
For me, LLIS gave me three quotes from three different, financially sound insurance companies. I’ll make a point here: while price is important, you really want to make sure you’re getting quotes from reputable insurance companies, with solid ratings.
USAA is one of the most financially stable companies in the business, so there’s really no worry there. However, if you do price-shopping (and I recommend that you do), make sure you take the time to fully understand the ratings of each of the insurers…any reputable insurance broker will walk you through that and take the time to make sure you have multiple options from financially solid companies.
Step 2: Reviewing the Quotes
I had quotes from three companies for multiple options, outlined below:
As you can see, I asked for multiple quotes, while varying a couple of factors:
- $1.5 million or $2.0 million in coverage
- 20 year term or 30 year term
The reason I did this is because wanted to see numbers side by side when doing my comparison. You can use the information in my case study to determine the amount of coverage you would want. However, it’s pretty clear that even $2 million in coverage over a 30 year term would be in line with SBP premiums, and provide much more security over the next 30 years.
Classes: You’ll also see that premiums are listed in ‘quoted class’ and ‘next available class.’ When I requested a quote, I didn’t list any major medical issues. You can see that the quoted class contains terms like ‘Preferred non-smoker.’ Next available class is simply the quote that’s listed in the case you have a medical condition that the insurance company deems to be a higher risk.
When getting a quote, don’t worry too much about medical conditions. You’ll have to disclose any major conditions. The insurance company will get the information it needs during the underwriting process. Unless you’ve already gone through the underwriting process, do not make any assumptions about your medical conditions.
Term length: Depending on your situation, you might only need a 10 year or 20 year policy to cover you until you reach financial independence. If that’s the case, you may very well consider purchasing SBP and a term policy.
Requesting multiple quotes from the insurance broker (or online) is easy for the company, so don’t be afraid to ask.
Step 3: Review the Financial Ratings
Even though the quotes included financial ratings (called a Life Insurer Financial Profile in my quote), I broke it out as a separate step to highlight its importance. This is what mine looked like:
Since most families don’t geek out over comparing the financial backing of insurance companies, I’ll point out the most important aspect: ratings. Ratings agencies such as A.M. Best, Standard & Poor’s and Moody’s evaluate insurance companies. Specifically, they rate them according to their ability to cover the insurance policies that they issue. As you can see here, all three of the insurance carriers have decent ratings, and are generally expected to be able to pay against a policy.
Although you should discuss in depth with your insurance broker, ratings and price are probably going to be the two primary concerns you need to deal with when choosing your policy. As you can see above, the cheapest carrier depends on which type of policy you select.
Step 4: The Life Insurance Application Process
Once you receive a quote, you might want to take some time to digest it before moving forward. That’s perfectly fine. This is a big decision, and you need to take some time to consider your options before making such a commitment.
I took about a month to think about the policy, and to make sure that I was selecting the right one. We could have gone with a 20 year policy. This would last until my early sixties, and I’m sure that we will have achieved financial independence by then. However, I stuck to my guns, and decided on a 30 year term policy with Prudential (Pruco) for $1.5 million. Prudential had the cheapest premium of the three for that type of policy. Also, I felt good that could cover a claim.
So I told LLIS the policy that I wanted to go with, and they immediately scheduled my physical exam and asked for permission to release my medical records for underwriting.
Step 5: Physical Exam
I could schedule an exam with a local clinic, which specializes in exams, drug screenings, etc. I set up my appointment, and went to the clinic. All told, my appointment lasted about 15 minutes, and consisted of:
- Taking blood samples
- Urinalysis (The nurse told me this is to test for drugs AND nicotine…smokers beware)
- Short medical questionnaire
- Vital signs (blood pressure, pulse, respirations, height/weight)
And that’s pretty much it. After that, the agent told me that the insurance company was sending my application to underwriting.
Step 6: Underwriting
After my exam, I told LLIS that my medical records were at MacDill Air Force Base’s 6th Medical Clinic. I also gave a ½ hour interview about my life, such as my habits, general health, etc. Then, nothing. For a while.
In my case, underwriting took place behind the scenes, with no additional information required. I couldn’t tell you the first thing that an insurance company does.
However, I imagine that they try to obtain copies of your records (which you sign a release for). Afterwards, they probably evaluate your medical history to see what constitutes a risk. Then, I think they probably make a determination, based on your total risks, which medical category you should go into.
I’m not an insurance agent, so I cannot go into detail about how insurance companies underwrite their policies. All I know is that about three weeks later, I got a notification that the insurance company approved my application. Furthermore, the company rated me as a ‘preferred non-smoker.’ I’m not a smoker, but I did have some medical issues that I was concerned about, specifically my asthma & my high blood pressure (both regulated by medicine and regular checkups). Apparently, those concerns were not enough to really raise the bar in the insurance company’s eyes.
The reason I point this out is to make sure you understand this point: Do not let your medical concerns keep you from applying for a policy. The insurance company has an underwriting process…give them access to all of your medical records, and let them tell you what they’re concerned with. Again, my experience will probably be different from yours, so I cannot guarantee any results.
Step 7: Putting the policy into force
Having an approved quote doesn’t mean a whole lot, if you don’t take the next step. I received the approved quote, which also included a copy of the contract for me to sign. The quote was broken out by monthly payments or annual premium. Usually (but not all the time), insurance companies might give a price break on a policy that is paid a full year in advance.
I sent in my signed policy, with my annual premium check to LLIS. After about a week, I got a notice that my policy was in force. That’s it.
However, it’s important to note that an approved policy & contract are not in force until you pay SOME premium and send the signed contract in. Afterwards, the policy is in force & the company is on the hook to uphold its end of the policy as long as you keep paying the premiums.
Some clauses that you might want to know about a life insurance contract. They’re in my contract, so I’ll point them out to you:
- Entire contract clause: This means that the contract that you’ve been given is the entire contract. There are no other documents, references, or items that the insurance company could hold you accountable for. Everything should be in the contract the insurance company gives to you.
- Incontestable clause: An insurer can cancel an insurance contract within an initial period (usually 2 years, but can vary). However, it must find a reason to state that the contract is unenforceable. If this is the case, the company must return unused premiums. This is true even if the policy is canceled due to material misstatement. Afterwards, the insurance company must continue to provide coverage as long as you pay the premiums.
- Suicide clause: Usually, there will be a suicide clause. This states the company will only refund premiums in the first 1-2 years if the insured commits suicide. The exact period is outlined in the contract.
This article’s purpose is not to force you into an insurance policy you don’t want. However, I hope that it achieved my goal of making the underwriting process easier for you to understand. You might find that your experience as a customer is different from mine.
If you’re still having difficulty taking that first step, you should talk with a fee-only financial planner. Before you hire that planner, make sure it’s someone that you know, like, and trust.