By U.S. law, life insurance can only be purchased from a licensed agent. Agents are either independent or “captive,” i.e. employed by a single company.
Insurance can be bought:
Directly from an insurer's licensed agent. With traditional companies such as Transamerica and AIG, this will involve several interactions, usually over the phone. With more automated companies, such as Ladder and Bestow, applicants may not interact directly with the agent.
Through an independent licensed insurance agent.
Direct from an insurer:
1. Find an insurance company whose products appear appropriate to your needs.
2. Obtain a quote for the desired amount of coverage and term length, either from the company’s website or over the phone. You'll likely need to provide details of health conditions and risk factors such as driving convictions.
3. Speak to an agent who will ask some more questions and recommend a specific life insurance product. (Not all companies, e.g. Ladder, have this requirement.)
Through an independent licensed broker:
1. Identify a broker and arrange to speak (in person, by phone, or online).
2. Provide the agent with the information needed to obtain quotes from multiple companies. Alternatively, you provide the agent with a quote you found on your own; quotes can be obtained from online brokers, such as Term 4 Sale or Policy Genius, or from individual insurers.
3. Work with the insurance agent to select an appropriate policy. The insurance agent should provide an illustration showing the quoted premiums, payment schedule and death benefit over the term of the policy.
The next steps are common to both sources:
4. Complete an application for the selected product. This is often a paper form you must mail; although some companies have an online application. The beneficiary or beneficiaries are specified in the application. A signed copy of the illustration should be submitted as part of the application and a copy retained by the applicant. The application contains additional questions on health and risk factors. Because insurance is regulated at the State level (there is no Federal regulator for insurance in the United States), it may be critical that the application be signed in the applicant’s State of domicile. If you plan to be away from your home State when applying the signature, check with your agent/insurer first.
5. The insurance company begins the underwriting process. Most companies will check the accuracy of the information provided in the application against information held by the MIB Group, government agencies and the applicant’s medical records. This can take several minutes to several weeks depending on what information is being verified and how manual the process is. The insurance company may contact the applicant, usually by phone, to ask clarifying questions.
According to its website, “MIB Group, Inc. (“MIB”) is a membership corporation owned by over 400 member insurance companies in the US and Canada. Organized in 1902, MIB's Underwriting Services protect insurers, policyholders and applicants from attempts to conceal or omit information material to the sound and equitable underwriting of life, disability income, critical illness, Medicare supplement, and long-term care insurance.”
The information you exchange with an insurer will be added to MIB’s database, where it will be accessible to insurance underwriters across the industry. Thus, if you were flagged with any past or existing conditions, these will be known, or accessible, to the entire industry.
I recommend requesting your MIB Consumer File at the bottom of this page.
6. Most policies require completion of a medical exam. This is usually scheduled to take place at the applicant’s home or place of work at a time convenient to the applicant. A nurse or medical technologist will typically ask you about, and record, your medical history, draw blood, and may also request a urine sample.
7. The insurer uses information from the application form and medical exam to assess the applicant’s insurance risk and finalize the price of the insurance (i.e., the premium). Some companies (e.g. Ladder) use algorithmic underwriting, making this process almost instantaneous. Companies using traditional, more manual methods, may take several weeks to complete this step.
8. If the application is approved, the applicant receives a copy of the policy, detailing the premium payment schedule. The applicant must sign the policy. If the issued policy is different than the one you originally applied for, e.g., the insurer offers different premiums or term length than those originally quoted, a revised illustration should be attached to the policy. If a revised illustration has been issued this should be signed and dated by the applicant along with the policy. Applicants usually have 30 days to accept the coverage and start making payments.
9. The first payment is made, the policy issued, and put into effect. You may be able to make an earlier payment, along with your original application. This could allow your coverage to go into effect at that (earlier) application date, instead of waiting until the entire underwriting process is completed—as long as the subsequent underwriting process deems you insurable.
In a separate section we look at how life insurance policies are priced.
I thank Eleanor Akers for drafting this article.