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To get life insurance coverage, insurers evaluate two major factors: your health and your finances. Your medical history impacts your life insurance rates, while your financial background impacts how much coverage you receive.
During the life insurance application process, underwriters evaluate your evidence of insurability, or financial background, to determine how much coverage to offer you.
The amount of life insurance coverage you can get is determined by your evidence of insurability
Your evidence of insurability is based on your age, income, assets, and the financial impact of your death on your beneficiaries
The medical component of the underwriting process has no impact on your evidence of insurability; you may be in excellent health but still ineligible for life insurance for financial reasons
Evidence of insurability is proof that you qualify for the coverage you’re asking for. Your death benefit amount should align with your assets, income, and the needs of your dependents. It’s separate from your health-related history, which determines how much you pay for that coverage.
Your evidence of insurability is assessed by insurers because life insurance coverage isn’t meant to be a way for your family to get rich — it’s a financial safety net. If you die prematurely, it substitutes the financial support you provided.
Your proof of insurability relies on something called insurable interest, which is essentially proof that someone would be financially burdened in the event of your death. Insurers also look for financial justification or verification that your income and assets are proportionate to the coverage amount you are asking for.
While your insurable interest and financial justification for life insurance can set your life insurance coverage limit, they have no impact on how much you pay for that coverage — your premiums are instead determined by your health profile, family history, lifestyle choices, and age. You can be in perfect health but because of your financial situation, you may still not qualify for life insurance and vice versa.
If you get life insurance with a certain amount of income or assets, but your financial situation worsens after your policy goes in force, life insurance companies cannot invalidate or change your policy.
The life insurance death benefit is meant to replace your income if you die, meaning that insurers won’t grant you coverage beyond what’s reasonable for your financial circumstance. If you’ve been unemployed long-term, you might not be eligible for traditional life insurance coverage whatsoever. If you’re simply in between jobs and unemployed for the short-term, the life insurance coverage you receive will likely reflect your previous pay. You may be asked to prove that you are on the job hunt or to provide pay stubs and documentation from your last job.
Though stay-at-home caretakers don’t make an income, they’re still eligible for coverage. Most insurance companies cover non-working spouses based on the income their spouse earns. A unique situation, such as additional assets, may change how much coverage you are eligible for.
Just as life insurance rates increase with age, life insurance companies use your age to determine the amount of coverage you can get. Your age is multiplied by your earned income to get the maximum coverage amount you’re eligible for. Each life insurance company has its own general guidelines about this.
The younger you are, the higher the amount of coverage you can get is, sometimes reaching as high as 40 times your income in your 20s. If you’re in your late 60s, the amount of coverage you can get can drop as low as five times your income. Once you enter your 70s, the amount you can get is up to the life insurance company's discretion.
There are a few reasons why being younger can qualify you for more life insurance coverage relative to your income. For starters, if you’re younger, you likely have a higher earning potential than you would if you are in your 60s or 70s, which means you would need a higher amount of income replacement. Secondly, as you age, you tend to have fewer dependents and less of a need for life insurance. For example, if you purchase life insurance to leave a death benefit for your grandchildren, you might need to prove that you are their primary caretaker and aren’t simply gifting them money.
Aside from income and age, underwriters may look at your mortgages, debts, assets, unearned income, and financial history when deciding upon your financial justification for purchasing life insurance. Each life insurance company treats each circumstance differently, and someone with no income but earnings from assets would qualify for coverage differently than someone with no income and no assets.
While it may be tempting to lie about your financial circumstances to get the best policy, life insurance companies run a soft credit check on you during the application. If they see that you falsified information, you can be disqualified from purchasing coverage or your policy can be invalidated. Life insurance companies also share this type of information with each other which may hinder you from shopping around for a policy elsewhere.
This makes it vital that you’re honest with the underwriter when they’re asking you about your financial history — or on any other part of the life insurance application for that matter.
Bankruptcies over 10 years ago and records of arrest, civil judgments, and lawsuits over 7 years ago won’t show up on the soft credit check run by life insurance companies. Each life insurance company treats an individual’s financial circumstances differently.
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The people you list as your beneficiaries during the application process must rely on you for financial support or would face a financial loss if you died. If you get a divorce or have another child, you can always adjust the beneficiary of your policy at a later date.
There are a few relationships that are valid for insurable interest. These people usually include:
Spouses or domestic partners
Children of the insured
Ex-spouses who depend on the insured for financial support
Any other individual whose financial wellbeing might be at risk if the insured died
Some relationships may require additional paperwork and evidence to demonstrate insurable interest, including:
Girlfriends, boyfriends, and non-legal partnerships
If your beneficiary is one of the above, you’ll have to demonstrate the financial relationship of both parties to the insurer. Life insurance companies might ask you to prove the relationship’s financial dependency or that any financial obligations are shared — such as bills or a mortgage — in order to name them as a beneficiary on the policy.
During the phone screen, you’ll be asked to provide some information about yourself, including your salary, age, and dependents. This usually provides the underwriter with enough information to determine your financial viability for a life insurance policy.
However, if you are asking for coverage that seems disproportionate to your circumstances, they may follow up with additional questions. It’s always good to have the appropriate paperwork on hand to show the underwriter in case they ask for any documentation.
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Just because you’re unable to prove evidence of insurability on a life insurance application doesn’t mean you’re completely barred from purchasing life insurance coverage altogether.
Individuals who aren’t able to purchase traditional life insurance can usually opt-in for a type of whole life insurance policy called final expense life insurance, which pays out a small death benefit to cover end-of-life expenses so your loved ones don’t have to. The payout can usually cover some medical bills and funeral costs. There are two types of final expense life insurance policies to choose from: guaranteed and simplified.
Although final expense life insurance can be costlier than a term life insurance policy and doesn’t usually offer enough coverage, acquiring some life insurance coverage is better than having none at all.
To prove evidence of insurability, you’ll be asked to disclose your income and assets.
Your insurability limit is the maximum coverage amount you can get and is determined by your age and income. The younger you are, the more coverage you can get in proportion to your income.
If you do not earn an income, you can still get life insurance coverage, though with limitations on the coverage amount or type of policy you can get.
Nupur Gambhir is a life insurance editor at Policygenius in New York City. She has researched and written extensively about life insurance since 2019, with specialties in life insurance companies, policy types, and end-of-life planning. Her writing on insurance and finance has appeared on MSN, The Financial Gym, and end-of-life planning service Cake. Previously, she worked in marketing and business development for travel and tech.
Nupur has a B.A. in Economics from Ohio State University.
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