Who Is Eligible for Life Insurance?

I started a term life insurance policy in my 20s. My then-husband and I wanted to ensure we each had coverage in case either of us passed away prematurely. Our debt could be paid off, and the additional funds could support the remaining spouse for an extended time as they worked through everything.

Although there are different types, term life insurance provides the best value for most situations:

• Life insurance should provide coverage for a certain time, such as when you have debt and/or dependents.

• Once your debt is paid off, your kids move out, and you are financially independent, you should have adequate assets to cover a funeral and related expenses, eliminating the need for life insurance.

• Term life insurance is affordable and likely fits your budget.

What Life Insurance Is

Life insurance pays a death benefit to your beneficiary if you die during the coverage period. The proceeds can help cover end-of-life expenses, pay off debt, and provide financial support to any dependents.

Benefits of Life Insurance

Life insurance offers many benefits:

• The payout can help provide financial support for dependents if you pass away during the coverage period.

• Term life insurance premiums should fit your budget.

• Riders can be added to the policy to customize the coverage to fit your needs.

Eligibility Criteria for Life Insurance

Common eligibility criteria for a life insurance policy include:

• Age: Most companies require applicants to be 18 to 69 years old to qualify for coverage.

• Health status: Whereas applicants with no health challenges are likely to be offered policies, applicants with pre-existing conditions, such as heart disease or cancer, might not receive coverage.

• Lifestyle factors: Insurance companies consider risk factors, such as whether an applicant is a smoker, works a job known to increase mortality rates, or engages in hobbies that negatively impact their lifespan. If approved for coverage, these individuals might pay higher life insurance premiums.

• Coverage amount: A person without dependents who wants to cover funeral expenses should require less coverage than a person with dependents.

Financial Considerations

These financial considerations are important when shopping around for a life insurance policy:

• Premium payments: Your age, gender, health history, coverage amount, and policy term impact the premium payments. Because higher coverage amounts and longer terms typically cost more, consider reducing the coverage amount or term to lower the cost.

• Payment frequency: Although monthly payments typically are allowed, quarterly, semi-annual, or annual payments usually include discounts.

• Policy term: Short-term life insurance might be best if you need coverage for a few years, such as until your children are adults. Conversely, because renewal costs typically increase with age, long-term insurance can be beneficial if you desire coverage until your mortgage and other debt are paid off.

• Policy riders: Riders let you customize your coverage at an additional cost.

• Contestability period: Typically, if you die during the first 2 years of coverage, the life insurance company can investigate the details provided on the application to determine the accuracy and potential omission of pertinent information. If any errors or omissions are discovered, the company could deny the claim and not pay the death benefit.

• Exclusions and limitations: Violating the terms and conditions of a life insurance policy can result in loss of coverage.

Documentation  

The documentation required to apply for life insurance typically includes:

• Identification: Your driver’s license, state-issued identification card, Social Security card, birth certificate, or multiple pieces of mail with your name and address might be needed to prove your identity.

• Financial information: Providing a W-2, pay stubs, or bank statements helps verify your income and ability to pay the life insurance premiums.

• Health records: Filling out a health questionnaire and participating in a medical exam usually are required to be considered for life insurance coverage. You might be asked to provide your health records, including the results of recent tests and blood work, documentation of pre-existing conditions and surgeries, and other relevant details.

• Beneficiary designation: The life insurance company must know whom to pay if you pass away during the coverage period. The primary beneficiary or beneficiaries receive the death benefit. The contingent beneficiary or beneficiaries receive the death benefit if the primary beneficiaries are unavailable or deceased.

How to Qualify for Life Insurance

A life insurance company’s revenue comes from policy premium payments. Therefore, the company evaluates an applicant’s life expectancy and the anticipated amount of payments to determine whether to provide a policy.

Qualifying for life insurance depends on the applicant’s characteristics:

• Age

• Gender

• Height

• Weight

• Health conditions

• Family health history

• Lifestyle habits

• Financial information

• Credit

• Driving record

• Criminal history

• Dangerous hobbies 

A longer estimated life expectancy increases the likelihood of receiving life insurance coverage. However, individuals who have a pre-existing health condition, participate in risky activities such as skydiving, or excessively consume alcohol or illegal substances could experience difficulty obtaining coverage.

Steps to Secure a Life Insurance Policy

These steps can help you secure a life insurance policy:

1. Determine your needs

Consider your purposes for wanting life insurance, such as:

• Covering funeral and burial costs

• Providing financial resources to dependents  

• Paying off debts and taxes

2. Shop around

Search for life insurance providers who offer your desired type of life insurance and amount of coverage. Learn about each company’s offerings, qualification requirements, costs, payment options, and other relevant details to find the best value. Then, contact a few providers for quotes.

3. Apply

Determine which life insurance quote best fits your needs and budget, then apply for a policy. Prepare for a lengthy number of questions about your health, finances, and lifestyle, and a potential medical exam with a licensed physician. This process determines whether you qualify for coverage and your premium rate.

4. Sign and make a payment

If coverage is approved and you accept the policy, sign the paperwork and make your first premium payment. You should be able to make monthly payments, although quarterly, semi-annual, or annual payments typically are less. Your coverage continues as long as the premium payments are on time.  

Medical Underwriting Process

The medical underwriting process ensures you are in the health condition described in the application and do not pose additional risk to the life insurance company. Typical steps in the process include:

1. Health questionnaire

The health questionnaire uncovers information about your health status. Common topics include your surgical history, the medicines you take, and pre-existing conditions. Providing accurate, detailed information is required.

2. Medical exam

The medical exam typically involves a blood pressure check, blood draw, and other basic tasks. A verbal questionnaire could be included to learn more about your medical history and evaluate your health.

3. Health history review

A medical underwriter reviews your health history and any pre-existing conditions. They evaluate the risk that providing you with coverage might pose to the life insurance company.

4. Underwriting decision

The underwriters decide whether to approve or decline your life insurance application. If they do not believe the original quote addresses the risk associated with providing coverage, they could change the premium rate. If so, you would need to agree to the new rate before coverage begins.

Talk with a Licensed Financial Professional

Talking with a licensed financial professional can help you navigate the complexity of life insurance. Life insurance agents and brokers can recommend policies and riders that fit your needs and budget.

*This information is for educational purposes only.