Every application for individually underwritten life insurance includes an income factor being used to prevent or reduce speculation. This is often based on earned income, but can be adjusted on a case-by-case basis by other particulars of an individual’s situation. Examples (for life insurance) could include total net worth, estate tax consequences, and age. The need for financial underwriting becomes more important with larger face amounts, and for business cases. Providing financial information with the application helps to qualify the amount of risk more quickly.
In many situations, the untimely death of an individual will create a financial loss. The purpose of financial underwriting is to determine whether the amount of coverage applied for and already in force bears a reasonable relationship to this loss.
Basic financial underwriting is concerned with:
•Establishing a valid insurable interest
•Relating insurance to demonstrable needs
•Ensuring a reasonable level of persistency.
The maximum guideline formula for each life insurance application includes the total amount in force plus the applied for amount with all companies, excluding group insurance, Acci-Flex Accident and Simplified Whole Life.
If the premium amount is 5 percent or greater than the gross family income, additional questions may be asked by the underwriter.
When the owner is someone other than the proposed, a financial insurable interest must exist. This includes a financial relationship such as owning property together or sharing a bank account. Insurable interest must be present at the time of application. If legitimate insurable interest does not exist at the time of application, the contract is not valid.
Alternative ownership arrangements that are valid examples of insurable interest include the following:
•Business partners own policies on each other as part of a buy-sell arrangement for the business
•A corporation owns a policy on a key employee
•A trust owns a policy on the life of a person who owns the trust for tax purposes
•The parent of a juvenile child
•A fiancé if the wedding is within 12 months; otherwise insurable interest is required
There are other acceptable arrangements which we may allow with proper justification.
NOTE: Some states prohibit an employer from owning life insurance on an insured where the employer is the beneficiary.
The following general purposes (not all-inclusive) for life insurance will be discussed in more detail. A common understanding of each application by sales representatives and underwriters will help ensure a smoother processing of the application and should improve time service to clients.
•Income replacement
•Insurance on those of older ages
•Juvenile insurance
•Grandparent gifts
•Charitable giving
•Deferred compensation/split
•Buy/Sell
•Key person
•Business loan
Questions on any application may be directed to the Assurity Contact Center at (800) 276-7619, ext. 4264.