When it comes to financial underwriting, there is one key question: “Does it make sense?” It’s important because this is the question underwriters focus on when evaluating life insurance applications for financial risk.
The underwriter looks at three basic factors:
1. Is there an insurable interest?
2. Is the amount of coverage applied for reasonable and in line with the insured’s needs?
3. Does the applicant have the ability to sustain future premiums?
In other words, does it make sense?
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Because these questions must be answered to an underwriter’s satisfaction, the writing agent should include a well-crafted, detailed cover letter with the application, particularly in large face amount cases or in smaller ones that present unusual facts or circumstances.
A clear statement of purpose and need can go a long way in establishing an accurate picture for an underwriter. A major objective of the cover letter is to make a good impression on the underwriter. This can help mitigate unnecessary delays and prevent raising questions that may complicate the process. When preparing a case cover letter involving a business, be sure to explain the reason for the application, such as key person coverage, funding a buy-sell agreement, or some other purpose.
Next, include a complete profile of the business. An underwriter will want to know the answers to a number of questions, such as:
1. What is the history of the business? When was it founded? Is it a start-up or has it been in business for a long time? What is its Web site address? You want the underwriter to believe you are presenting a clear, accurate, and thorough picture.
2. Who are the owners of the business? Include something about their background and business experience to show that they have a solid track record.
3. What is their percentage of ownership? The actual percentage can be important when it comes to understanding their vested interest in the business.
4. What type of business is it? In other words, what do they do? Do they manufacture a product, or provide a service, or both? Is it retailer? Who are its customers?
5. What is the company’s tax structure? Is it a C-Corp, an S-Corp, an LLC, or a partnership? You will want to attach any current news articles or stories that have been published about the company. This information enhances an underwriter’s picture of the business.
There are three types of applications that deserve particular attention when it comes to financial underwriting: