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Week of April 25, 2008 • Previous Question ArchiveMs. Sabella has managed MainStay Balanced Fund since its inception in 1989. She is a Managing Director and has been with NYLIM since 2000. Prior to that, she worked at Towneley Capital Management, Inc. for 22 years. Ms. Sabella is a member of the Financial Planning Association, Financial Women's Association, and the CFA Institute. She holds a B.B.A. from Baruch College, is a Certified Financial Planner, and is a Chartered Retirement Planning Counselor.
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Q: I am looking into life insurance for my husband and I, Id like to find out what we would have to do to see about getting it. Do we have to take physicals? Does the premium go by our age? These are just a few questions Id like to find out if I can. Thank you.
A: The short answer is, yes and yes. You do have take physicals and the premium does increase as you get older. Here is a story on revealing the mysteries of the life insurance exam.
Examination limits vary throughout the industry and are based on an individual’s age and the amount of insurance they would like to purchase. As a person gets older the examination limits start at lower amounts of insurance, but in general, the purchase of a policy for more than $100,000 of life insurance will require an individual to complete a medical exam.
An exam is used as part of an insurance company’s underwriting process. It is just one component of the process and is fairly simple for the proposed insured. It usually takes less than 30 minutes to complete.
Life insurance allows a person to purchase protection against financial loss occurring at the time of death. Underwriting is the term used to describe the process of evaluating non-medical and medical information about the proposed insured to determine the effect these factors will have on life expectancy. Proper assessment of a risk is essential to maintaining a financially stable company so that all policies can be honored in the future. The use of examinations in underwriting, is one way an insurance company, such as New York Life, makes certain it can keep its promises to all its policyowners for generations to come.
The good news is that most people who take insurance exams qualify for insurance and the policy is issued without a problem. To explain the process as simply as possible, we have compiled a list of frequently asked questions and responses to help provide insight.
1. After my agent and I settled on the amount of life insurance I needed, he asked me some questions about my activities and general health. Then he told me I would need to have an exam completed. Why does the company need so much information and why can’t it be taken all at once?
To gain as complete a picture of the potential risk an individual presents to the insurance company, the evaluation of the application and the relevant information about an individual’s activities and general health are important.
The life insurance application is usually completed in two parts, known simply as Part I and Part II. Part I consists of general information about the individual as well as personal information about such things as driving history, criminal history, other life insurance coverage, recreational sports activities and finances.. There is also an authorization to sign which grants permission for the company to request medical information from physicians and other medical record keepers if it becomes needed.
Part II is the medical questionnaire. Depending upon the amount of insurance this portion of the application will be completed by either your life insurance agent, a paramedical professional or a doctor.
Once completed, the Part I and Part II provide the insurer with a fairly comprehensive picture of the exposure to risk the proposed insured represents. Each company has its own standards of what it considers to be acceptable insurable risks and will offer a policy based on those guidelines.
2. What kind of medical exam will I have to take?
The short answer is – that depends. Generally speaking, if you are under 40 years of age and are applying for less than $100,000 of coverage, there’s a good chance the company will not have an actual exam completed but will have some lab studies completed such as an oral fluid test, blood test or urinalysis. If you are over 40 for and/or applying for more than $100,000, you may be required to have either a paramedical or full medical exam. In addition to the exam any of the following studies could be included with the exam: oral fluid test; blood test; urinalysis; EKG tracing; X-ray and possibly a Treadmill Stress test. If any of these exams or tests becomes required and they are not completed, the company will not accept your application for insurance.
a. Paramedical Exam
A trained technician will complete the paramedical exam. The paramedic asks medical history questions and measures height, weight, blood pressure and pulse. Depending upon your age and the amount of insurance being applied for, the paramedic may also perform an oral fluid test or a blood and urine test and possibly an electrocardiogram as well. In most cases a paramedic will call you to find a convenient time to schedule the exam and come out to your house to perform it. You also have the option of going to a clinic for the exam. The exam takes approximately 30 minutes.
b. Full Medical Exam
A physician will complete the full medical exam. The exam consists of the same elements of the paramedical exam, plus listening to the heart, and a review of other bodily systems. Some companies specify that the physician must be a board certified internist or heart specialist rather than a general practitioner.
3. What do the tests show?
The insurance company wants to check for any unknown conditions that could adversely impact an individual’s normal life expectancy and could increase the company’s risk. The urinalysis screens for a number of things including diabetes, the presence of medications and nicotine as well as general kidney function. The blood profile can reveal the functioning of organs of the body and specific testing for things such as diabetes, liver impairments and kidney impairments as well as HIV testing. An oral fluid test can indicate the presence of HIV antibodies, as well as cocaine and nicotine.
4. What other information does an insurance company gather?
In addition, to Parts I &II the company may want to review your medical records or obtain a phone interview with you. Medical records can be obtained for a few reasons with one being a way to check how your personal physician is treating you or has treated you for a medical condition.
At times a phone interview is conducted to verify the information on the application and to obtain a few additional details to clarify this information. In the case of New York Life, if an interview is needed a company representative will contact you directly to maintain a high level of customer satisfaction and confidentiality.
Most life insurers are members of a non-profit organization called MIB Inc. This organization maintains a database of applications submitted to companies in the industry. Once an application and signed authorization is received, Insurers will check with MIB to see if there is a record of any other insurance applications you may have submitted in the past. The MIB provides a report to the insurance company and these are kept highly confidential. This report acts as a fraud deterrent for people who may not want to reveal prior insurance activity.
5. Can proposed insureds access all the results of exams and other requested information?
Yes. People can and frequently do request to receive copies of test results. They can also request to have them sent to their personal physician.
6. Who else has access to these results?
Exam results and medical records are sent directly to the company’s underwriters and handled in strict confidence.
7. How are the results used?
The information gathered on both parts of the application and from the other requirements is used to classify the risk a person represents. Based on the level of risk a proposed insured is placed into one of four general categories, preferred, standard, special class or declined. Every company has its own rating and based on this they determine the premium structures for the policy.
8. What if an exam reveals an unknown medical problem?
Remember most people that undergo medical exams qualify for insurance without any concerns. In the unlikely event a problem is discovered, you may be offered a policy with a higher premium as a special class or we may postpone the application until the findings are evaluated by your personal physician.
9. What if I disagree with my rating?
If you disagree with a rating, your agent can act on your behalf with the insurance company. It may mean furnishing additional information from your physician to the insurance company. Also, a rating or declination is not always permanent. Quitting smoking, losing weight, lowering your cholesterol, among other things can all help change your risk classification.
10. What is role of the agent in this process?
The agent can act as your advocate in the process and with the insurance company. The agent can explain the underwriting and exam process to make sure the proposed insured understands why certain tests may be needed.
New York Life wants to do business with you. A New York Life agent, professionally trained and experienced, can help you analyze your needs and recommend solutions through insurance and financial products, Click here to request a free, no obligation, consultation with a New York Life agent.
This article is intended to provide general information only and is not intended to provide investment advice or any recommendation to buy, sell or hold securities. The content of this article is not appropriate for the purposes of making a decision to carry out a transaction or trade, nor does it provide any form of advice (investment, tax, legal) amounting to investment advice or make any recommendations regarding particular financial instruments, securities, investments or products. Any information herein has no regard to the specific investment objectives, financial situation, or particular needs of any specific investor, and investments discussed may not be suitable for all investors. Neither NYLIM nor New York life will be liable for any errors or inaccuracies in such content or any actions taken in reliance thereon. As a registered investment advisor, NYLIM may render investment advice for compensation only as permitted under applicable US and state law.
Questions will usually be answered within the next bi-weekly posting of Ask Joan. If a question is particularly involved, or the answer depends on the specific circumstances, it may be possible to give only a very general answer. In these cases, you will be advised to seek more specific advice.
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