When you apply for life insurance, you're asked to share some pretty sensitive information about yourself. But the question that we've had customers ask about the most are why life insurance carriers request your Social Security and drivers license numbers.
Which, when you think about it, makes sense. Your Social Security number in particular is one of the primary means by which the government can identify you—which means it's an attractive target for thieves. And until recently it was also one of the most widely shared pieces of information about you, which is problematic in today's world of massive data breaches.
So it's a good thing that we're all growing savvier about asking why a third party needs that info and what they plan on doing with it. If someone is asking you for it, they should be able to explain why.
That's why we've put together a list of some of the most common questions we hear about these two requests, and our answers to them.
"Why do you need my Social Security number?"
There are three main reasons:
To confirm your identity and prevent fraud.
To check the MIB (a data clearinghouse for the industry) to see whether you recently applied for a policy with another insurer. It's not necessarily a bad thing if you did, but it's a cost-effective way of weeding out bad actors—like those who misrepresented themselves to another life insurance company—early on. The MIB uses Social Security numbers to track this information.
To check with any prescription drug databases in your state in order to look for signs of health conditions that will affect your application. It's not uncommon for an applicant to underestimate how a previous or managed health condition can affect the risk profile that the insurer uses to price a policy. Checking a prescription drug database is a quick way for the insurer to look for this sort of data that an applicant might honestly forget to mention.
There's a fourth reason that comes up only sometimes. If you've indicated on your application that you have a bankruptcy or criminal record in your past, the insurer might use your SSN to check whether there's anything recent that could affect the risk profile. (Insurers usually ask that your previous 12 months are clear of these kinds of things.)
"Aren't there other ways to do this?"
In some cases, like verifying your identity and looking for court records, the SSN is a reliable and universal way to do this. In other cases, like checking the MIB for recent applications elsewhere, there's technically no reason the group can't use an internal identification system instead of Social Security numbers. But this is an example of one of those legacy situations from back when every industry used the SSN as a catch-all identifier. Unfortunately, because the world of insurance is a slow moving beast, it may be many years before this practice changes.
"Why do you need my drivers license number?"
The insurer uses your drivers license number to check your driving record for any moving violations, accidents or license suspensions. As with the prescription drug database check mentioned above, this is a way for the insurer to find things that have been proven to affect an applicant's risk profile but that the applicant might not think is important.
Life insurers, long-term disability insurers, auto insurers and more will use motor vehicle reports, or MRVs, to see what sort of dings against your driving record, like speeding tickets or DUIs, you've accrued over the years. Because insurers want to see how risky you are to insure, they'll use these to determine your final life insurance rates.
Your drivers license number may also be used along with your SSN to help verify your identity, since most states require your SSN before issuing you a drivers license.
"What's the point of this level of scrutiny?"
We touched on this in the first question, but here's the more detailed answer. The insurer checks for all this stuff to prevent fraud, and to accurately price the mortality risk of a policy. If the company can't resolve those two needs, it can't sell a policy.
"Can the insurance company legally demand this information?"
Yes. And in turn, you can refuse to provide it. And in turn again, the insurance company can decline to sell you a policy.
In other words, both parties are basically free to deal with this request however they like, so long as no federal laws are violated. This is why the advice you find online about guarding your Social Security number encourages you to push back and ask why it's needed instead of arguing about the law.
There are some times when you're legally required to give your SSN, specifically with some government agencies.
"What happens if I don't want to share these numbers?"
For life insurance, it means the insurer can't confirm you're who you say you are, and it can't accurately price the mortality risk of providing coverage for you. As a result, it won't be able to price or sell a policy.
"How can I tell whether or not this is an appropriate request?"
To start with, ask the company why they need it. They should be able to provide a solid explanation (like this one). If they can't, it's probably not because they're untrustworthy. It's more likely that they're working with a legacy system that was built before we all got wise to the fact that we shouldn't be using our SSNs for every business transaction. Or it's just force of habit. In some cases you might be able to convince them to use a different identifier.
When it comes to applying for life insurance, however, a different identifier won't work for the reasons listed above. And just so you know that we practice what we preach, here's our own privacy pledge.