The Good, The Bad And The Uninsurable
There always has been a wide range of underwriting levels for life insurance products, and the range seems to get wider and wider.
To cover the level of expected mortality rates across this range, life insurance companies have offered products that go from pre-need life insurance all the way to the super-preferred, high band term life insurance.
The premiums that support these policies also vary widely. The premium rate per $1,000 of face amount on a final expense policy may be more than 10 times as great as the premium rate on a fully underwritten plan. Yet, each of these products fills a specific need in the marketplace.
As the physical health and financial needs of the customers vary, so, too, do the levels of underwriting and mortality risks and, therefore, premium levels. This article discusses the products available at different underwriting levels.
Products. At the low end of the range according to average face amount and at the high end of the range of expected mortality is the pre-need product. Pre-need life insurance is generally sold to older insureds who want to pre-pay for their funeral costs. Because the face amounts are generally below $10,000, there is no medical underwriting. The policies are sold as guaranteed issue or simplified issue. The simplified issue policies include a few questions on an application; if all of the questions can be answered no, the sale will go through.
The next type of product is called final expense, or senior whole life products. These are generally sold as simplified issue and usually include a few more medical questions on the application than the pre-need product. The face amounts are generally less than $50,000 and are sold to the senior market.
Next are the low face amount whole life, universal life and term life insurance products that have 2 underwriting classes. These have more medical questions on the application and may include a para-medical exam requirement, too. The face amount on these products usually ranges from $50,000 to $150,000.