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Life Insurance: The Application Process

You've shopped around, found the right insurance policy, and now you're ready to apply for it. What happens when you do?

First, the paperwork

You'll need to fill out an application form, of course. The form will ask for the usual personal information, and then it'll ask extensive questions about your medical history. You should answer these questions truthfully and as completely as you can.

Don't shave a few pounds off your weight or hide the fact that you have diabetes. If you're required to have a medical exam, the results will speak for themselves. Even if an exam isn't required, your insurer will check the answers you provided against your physician's records and whatever record you might have on file at the Medical Information Bureau (MIB), a clearinghouse for medical information that's contributed to and used by a wide range of insurance providers. If the medical exam, your physician, or the MIB file tells a different story than you did on your application, all you've really done is make the insurance underwriters suspicious.

Once you've completed your application, your agent will review it and contact a paramedical service if a medical exam is necessary. Paramedical services are staffed by independent licensed health professionals who contract with insurance companies to provide medical exams. Paramedical services also stay up-to-date on what different insurers use as underwriting requirements--the medical data that the insurer needs to determine your insurability. The agent gives the paramedical service information about you, how much insurance you're applying for, and the name of the company that'll insure you.

Roll up your sleeve, please: the medical exam

If you're under 40 and apply for less than $100,000 of insurance, you may not be required to take a physical. If you're older than that, or if you're applying for more insurance than that, chances are you'll be required to have at least a basic medical exam. Some elements of your medical history (e.g., high blood pressure, a family history of diabetes) may also trigger an insurer's request for such an exam. Moreover, your age, health, and the amount of insurance you want might cause insurers to request additional tests, such as an EKG and/or an exercise (stress) test. Generally, if you're applying for more than $1 million in insurance, the insurer may ask that you see a doctor (rather than a paramedic) for the medical exam.

In most cases, the paramedical service will contact you to schedule an appointment for the medical exam. The paramedics are often mobile and will see you in your home or office. If that isn't possible, you may schedule an appointment at a clinic. In a basic exam, the paramedic reviews your medical history with you, takes your physical measurements (height and weight), checks your vital signs (temperature, blood pressure, and pulse rate), and collects diagnostic specimens (blood and urine). The whole process can be completed quickly, often within half an hour.

The results of your medical exam are then forwarded to the insurer's home office for review by the company's underwriters. In addition, the insurer will request your MIB file. If anything--your medical exam results, or discrepancies between the information you've supplied and the information that turned up by examining your MIB file--causes the medical underwriter to become suspicious, you may be asked to take additional medical tests. If you want the insurance, you won't have the option of refusing to take them.

The odds are . . .

What's the insurer looking for? To rate your insurability (and determine the premium you'll pay), the insurance company's underwriters carefully review your personal and medical information to develop your risk profile. This profile takes into account both your past medical history and your current health and physical condition. But other factors are considered as well. Your vocation can affect your risk profile (you defuse bombs for a living), as can your avocations (you scale sheer rock cliffs without safety equipment), your personal habits (you smoke, drink, or use drugs), and your age (50-year-olds won't live as long as 25-year-olds). In states that allow it, your gender will affect your risk profile; women live longer than men.

These things are not decided on a whim; they're based on actuarial projections. Does a poor risk profile mean that you won't get the insurance? In some cases, yes. It's more likely, however, that the insurer will offer to provide you coverage, but at a higher premium rate than you'd have to pay if you were a better risk. You have the right to dispute the rating you're given; if you want to do so, get your insurance agent involved. Sometimes, additional medical tests or other information might make a difference in your favor.

Of course, you can decline the insurer's offer and try to buy a policy elsewhere. However, the information on your application and the results of your medical tests will be codified and forwarded by the insurer to the MIB, where it will become part of your file that's available to any subsequent insurer. Unfortunately, when that's the case, shopping around for life insurance may only turn up the same goods at the same price--or at a higher one.