What is the maximum amount of life insurance you can apply for?
When applying for something as important as life insurance, many people are naturally compelled to try to get the highest coverage amount possible. While this may show a great deal of long-term commitment to the well-being and overall stability of your loved ones, there are some things you should consider before you fill out your application.
What formula do insurance companies use for maximum coverage?
Until recently, most insurance companies followed the same guidelines to establish an applicant’s maximum of life coverage. Life insurance companies followed a standard procedure in which they looked at two major factors: your claims experience and the mortality assumptions about your particular situation. These two factors then determined whether you are eligible for higher or lower amounts and whether any medical examinations and tests are required before you can receive coverage. The introduction of no-medical life insurance has added flexibility to the application process. But it lowers the available benefit that can be received. Your maximum amount will depend on the type of coverage (guaranteed issue, simplified issue, or traditional fully underwritten coverage) you want or quality for. Guaranteed issue coverage has the lowest face amounts available and traditional fully underwritten policies have the highest coverage amounts available.
Is disclosure of financial information required?
If you are applying for an insurance amount up to $500,000 ($750,000 in some cases), there is no need for you to provide financial information to the insurance broker. With higher amounts, however, the situation quickly changes, as the insurance company needs to determine the levels of eligibility based on levels of risk. The applicant’s age, income level, and shareholder status at a company all come into play for the larger life insurance amounts. Importantly, there is no specific minimum or maximum number of questions an applicant would be asked by the insurance company — everything depends on internal protocols. Plus, requests for larger amounts, such as an application for a $10 million policy by someone earning only $20,000 a year, would be put under additional scrutiny and require justification of this face value.
An important term to know: "anti-selection"
One way some life insurance applicants attempt to avoid providing financial information and undergoing health tests is by applying simultaneously to several insurers for lower amounts. This approach, related to what insurers would call "anti-selection," mostly proves highly ineffective, as the second and other consecutive insurance companies would, in fact, have access to information about the amounts for which a person is already insured and would thus require financial information in order to justify additional coverage.
A better approach is available
If you are uncomfortable with or unwilling to share detailed financial information with an insurance company or would like to avoid health checks, excessive questioning and tests, an approach is simply going through an insurer that does not require medical exams or financial information. These companies do exist nowadays and should be easy to find in your area. They offer amounts up to $300,000 in life insurance coverage — an amount that would work for many applicants. If you have been denied coverage before, attempted the anti-selection approach, or would simply like to avoid the financial disclosure aspect, this is an option you should seriously consider. One caveat to keep in mind is you are paying a surplus premium for this convenience. Simplified issue policies have higher premiums than traditional life insurance policies.
Some advice on choosing your insurance provider
There has been a huge influx of no-medical life insurance carriers and companies that were already in this space or revamping their product portfolio. Humania Assurance recently introduced a $300,000 Simplified Issue Term and Term 20 policy. Equitable Life and La Capitale also introduced Simplified Issue Permanent plans and both Canada Protection Plan and Assumption Life revamped their already impressive lineups. Significant variations in pricing and plan features exist between companies.
When approaching insurance companies, the best rule of thumb is to be as clear, concise, and truthful in your answers as possible. Pay close attention to the way the question is worded. If you are unsure, ask your doctor for clarification. Also confirm whether the broker or agent you are dealing with is independent (can offer you the best products suiting your needs from a variety of companies) or captive (only selling a limited number of products from a specific source).
LSM – The experience of numerous clients has shown that our brokers take the time to listen to your specific case before looking for solutions, which means that they do not try to fit your individual situation into a pre-made slot that may be very different from what you require. Our independent brokers allow us to offer the widest variety of products to customers.