When you apply for life insurance, you’re going to be asked a series of questions, that range from the general to the deeply personal! It’s all part of a process called underwriting. Your answers will determine both your eligibility for different life insurance products and your premiums. So yes, they’re very important!
But what questions do life insurance companies need to know? Below is an exhaustive list of everything you might be asked. For small life insurance policies, or for a young and fit person, it’s possible you’ll only be asked the first three or four questions.
What is underwriting?
Underwriting is when your life insurance company decides whether to offer you coverage, what the conditions are, and how much you’ll pay. The evaluation often costs the insurer hundreds of dollars, but there’s no charge to you.
Scrutiny increases as the desired amount of coverage increases. Since permanent life insurance allows tax-sheltered growth, there are more questions that have to be asked to comply with the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. The underwriting questions may seem daunting, and some at times don’t seem particularly releveant, but it’s very important that you answer all of them accurately.
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Part 1: Questions that will affect your premiums
Whether you’re applying for life insurance or just getting a life insurance quote, these questions will be asked to determine your premiums. For simplicity, let’s assume that you’re applying for life insurance on your own life – it’s a bit more complicated if you’re getting life insurance for someone else, like your children or parents.
Your personal information
At a minimum, your insurance company will need to know your personal details. These include your:
- Name and date of birth;
- Occupation, employer, and social insurance number; and
- Home address and how long you’ve lived there.
You generally need to be a Canadian resident when you purchase life insurance, and government-issued photo ID may be required. Most of this information is procedural – if your personal details are wrong, your insurance company may not be able to pay out a benefit to you or your beneficiaries. However, your age and your gender are directly linked to your premiums. Older people will pay more for life insurance than younger people, and women will generally pay less than men.
Do you smoke?
The next question for any life insurance application is your smoking status. Being a smoker is generally defined as having smoked any substance withing the last 12 months. If you are a smoker, you’ll be at greater risk of death, and your premiums will be much higher. Smokers generally pay 50-100% more for life insurance than non-smokers do.
As of December 2019, most life insurance companies consider vaping as the same category as smoking. That is to say, if you vape, you are considered a smoker. However, many life insurance companies have different policies regarding casual cannabis use, which has mostly been reclassified as a low-risk activity since its legalization in Canada. This definitely differs between companies, so you’ll need to ask your insurance agent or sales representative.
What’s your health like?
If you’re buying an iPad, Apple doesn’t care about your health. If you’re buying life insurance, your health matters – a lot! If you’re suffering from a known condition, you could be at a higher risk of a payout, so your life insurance company needs to know about it. You’ll be asked about:
- Height, weight, family health history;
- Smoking and drinking;
- Any criminal offences or licence suspensions; and
- Your most recent doctor’s visit: date, reason for going, if you received a prescription, and the outcome.
Depending on your answers and the desired amount of coverage, your answers may be verified with a paramedical examination or by your doctor (an attending physician’s statement). If you don’t feel comfortable answering medical questions in front of your advisor, you may be able to answer them in private through a tele-interview or paramedical examination.
An important note here: It’s very important to be 100% honest about your health when you get life insurance, even if it means disclosing something that will increase your premiums. If you aren’t honest, you’ll be committing insurance fraud, and you risk your policy not paying out at all!
Your job and hobbies
Some activities you engage in may affect your risk of injury or death. For example, if you skydive or drive race cars on the weekend, you’ll be at a higher risk of death than someone who spends their time knitting and playing the clarinet! A dangerous hobby may mean you’ll face exclusions, be charged higher premiums, or be declined for a particular kind of coverage. Your recent and planned foreign travel can also be considered.
Your occupation will also factor into your premiums for the same reason. An office worker doesn’t face the same risks as a construction worker, for example. Most life insurance companies have a series of occupational risk ratings that you’ll fall into, that will help determine your premiums.
Part 2: Questions that might affect your premiums
These questions will also come up as part of a life insurance quote or application, but they don’t increase your risk factor, so won’t directly increase your premiums. Of course, your premiums will be higher if you take out additional coverage, or choose a more expensive product!
What type of life insurance do you want to buy?
Life insurance companies use the same application forms for different products. They need to know the specific product and amount of protection you want (e.g., term life insurance with $1 million in coverage).
Generally speaking, permanent life insurance is the most expensive type of insurance, as it covers you for life and is virtually guaranteed to pay out. However, it can be a better financial decision over the long term, because of the tax-advantaged investment options it offers.
Why are you motivated to buy?
Life insurance is considered a product that’s sold, not bought. If you’re eager to buy without a sensible reason, the insurance company make be suspicious that you’re planning on committing insurance fraud!
‘Typical’ reasons you might want to buy life insurance are a new relationship, marriage, the birth of a child, or a big financial change, like buying a house or starting a business. Of course, just getting your life together can also be a reason!
What other insurance do you have?
Life insurance companies want to be sure that you’re not over-insured, for both legal and business reasons. To prevent from being over-insured, you’ll be asked about:
- Insurance you already have (type, amount, insurance company, when purchased); and
- Insurance you’re applying to buy from other companies.
Insurance companies have access to a centralized database that has details on all of your past life insurance history, and they will check it before they sell you a policy. So it’s in your best interest not to lie, because you’ll be found out!
What’s your financial situation?
Your life insurance company may also ask about your assets and liabilities to determine if the amount of life insurance you want is reasonable. You don’t need to be exact – approximations are usually acceptable.
Just to be clear, it’s not a deal breaker if you have low assets and a lot of debt. As long as you have good cash flow, you’ll still be able to get a life insurance policy of some sort, which can help you build your weath long term.
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Part 3: Questions that wont affect your premiums
Finally, there are a few questions that you’ll need to answer that won’t affect your premium base rate, as they aren’t considered as part of the underwriting process. While they could increase the amount you pay, it’ll never be by much.
Who are your beneficiaries?
Who receives the death benefit? You can designate more than one beneficiary and specify the portion each receives. Making the beneficiary revocable lets you change your mind later. If you make it irrevocable, you need permission from the beneficiary first. Since the beneficiary could die before you do, you can specify a contingent beneficiary, too.
How will you be paying?
The insurance company wants to know how you’ll pay for your premiums, whether it’ll be by cheque or pre-authorized withdrawals from your bank account. Most policies will also need you to decide if you’ll pay yearly or monthly, always upfront. Some life insurance types let you pay monthly without charing extra, while other policies will impose a monthly surcharge.
Do you need temporary insurance?
Your life insurance plan won’t begin until after underwriting has finished, so you won’t be covered for at least a few days after your initial application. If you are likely to qualify for the final product, your insurance company or agent may offer you temporary life insurance before approving you for regular insurance, which starts immediately. It’s typically a little more expensive than your final policy, but it’s a good way to get coverage immediately.
The bottom line: Be prepared
When applying for a life insurance policy, or even when comparing quotes for life insurance, be prepared to answer these questions honestly and accurately. Some of them are very personal, but life insurance is a very personal product, that requires that information. Canadian life insurance companies do hold licensed operators to a very high standard of privacy and data protection though, so you can generally trust your information will be safe (at least as safe as it can be these days).
A final reminder – if you lie to your life insurance company, you’re asking for trouble. You’ll be committing insurance fraud, which could see your life insurance policy cancelled, and make it harder to get coverage in the future. If you die before this happens, your policy may not pay out… and yes, this happens a lot.
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