Welcome to Quotacy’s Q&A Friday where we answer your life insurance questions. Quotacy is an online life insurance broker where you can get life insurance on your terms. I’m Jeanna
And I’m Natasha Today’s question is: what is financial underwriting? When someone applies for life insurance, financial underwriting is the process of evaluating whether or not the proposed coverage amount is reasonable and making sure buying the policy in the first place makes sense. When you apply for life insurance, you choose a certain amount of coverage. This is called the face amount of the policy. The insurance company wants to make sure you’re not worth more dead than alive. And if you’re applying for life insurance on someone else they also want to make sure the reasoning behind it is acceptable. For example, you cannot buy one million dollars of life insurance on your distant great aunt just because. You can’t even buy fifty thousand dollars of life insurance on her if she doesn’t impact you at all. Life insurance companies are looking for insurable interest when you apply for life insurance on someone else. Having insurable interest means you would experience financial loss or hardship if that person died. Your distant great aunt dying unexpectedly probably wouldn’t affect you financially in any way. Spouses and partners have clear insurable interest. They both typically work together to pay bills. If one of them died, the other would definitely feel financial hardship. Spouses can buy life insurance on one another pretty easily. Buying life insurance on your spouse even if they don’t earn an income can also be approved, but with caveats. Insurance companies will require that the working spouse have at least the same amount of life insurance coverage that is being applied for on the non-working spouse. And some insurance companies will reduce the amount of approved coverage to only a certain percentage of the working spouse’s coverage. Sometimes adult children will apply for life insurance on their aging parents. This situation can sometimes be difficult to prove insurable interest now that the adult child is grown and maybe doesn’t financially rely on their parent any longer. In these cases, insurance companies would rather have the aging parent own the life insurance policy and then gift their child the money to pay the premiums. But there can be cases made for the adult child owning it, such as equalizing an inheritance or covering potential long-term care expenses. You and your agent may simply have to work a bit harder to convince the insurance company that it’s all kosher. We get many questions from parents with young children asking why their parent wants life insurance coverage on their grandchildren. They feel a bit uneasy about it sometimes. We can tell you it’s fairly common for grandparents to buy permanent life insurance policies on their young grandchildren. Many grandparents want to help out their grandchildren financially. They can buy permanent life insurance on their grandchildren and these policies can accumulate cash value and guarantee their future insurability. As the child grows, the cash value inside the permanent policy grows. Years later, the grandparents can withdraw these funds and use it to help their grandchildren with college tuition or perhaps help pay for a wedding. Anything they want to use it for. Alternatively, when the grandchild is grown, the grandparent can transfer ownership of the policy and the adult grandchild can either keep the policy active or surrender it for the built up cash value. This permanent policy bought on the grandchild also guarantees their future insurability, meaning if the child were to develop a health condition later in life, they can breathe a little easier knowing that they already have life insurance in place. The grandparents can transfer ownership over and the adult child with the medical condition can make their own family the beneficiary of this policy. It’s important to note that, as a rule, policy owners have complete control over the policy so the grandparents are not required to transfer ownership. Also, in order for grandparents to buy life insurance on their grandchildren the insurance companies also require that the grandparents have insurance all of their grandchildren, not just one. Unless they have a legitimate reason for not buying on the others that they can explain to the life insurance company. With all life insurance cases, insurance companies base their decisions off their underwriting guidelines. But these guidelines are just that. Guidance. Life insurance evaluations are not black and white. There’s a lot of grey area in there. For example, if you and your business partner just started a company and you want to buy one million dollars of life insurance on each other, this might be difficult to get approved at first because you haven’t made a profit yet. You just started the company. At first glance, this face amount won’t makes sense to the insurance company. However, you and your Quotacy agent can work together collecting other documentation to convince the life insurance underwriters that the coverage you’re applying for is justifiable. Examples of proof may be previous employment salary records, business plans that you’ve come up with, or third party appraisals of your new business. Whatever the situation may be, when you apply for life insurance through Quotacy, know that your agent advocates for you, not the insurance company. Thanks for watching. If you have any questions about life insurance, make sure to leave us a comment. And if you have any questions regarding today’s topic, check out the blog link posted below. If you’re ready to get quotes, check out Quotacy.com. We’re here to help you find the best deal on the life insurance you want. Bye! Thanks for sticking around! We’d appreciate if you Liked the video and hit that fancy little Subscribe button to see us every week. Bye!