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I did a series of posts last year on life insurance policies and have referred back to those posts on several occasions when explaining some specific clauses and options such as the suicide clause and incontestability clause and the conversion option.

Now I would like to start from the beginning and talk about the application. The application itself has been something of a sore point with some customers and for a few who are more concerned than the average person with identity theft, a cause for deciding against applying. I have actually had clients pull the plug completely on purchasing life insurance to protect their family because of questions about their social security number, their income and their net worth.

For the purposes of this subject I’ve chosen to use a West Coast Life insurance application mostly due to the simplicity of the document. west-coast-life-application Notice that they don’t beat around the bush with identity information. Coming out of the first line of the application they have your name, date of birth, social security and driver’s license numbers.

The social security number is right up there with the most frequent “Why do they need to know that?” questions I get. It’s not questioned that often, but probably 1 out of every 100 clients has some issue with it. There are really two reasons. The SSN is used to confirm identity on both the application and upon death. The other reason is that your death is an event that has to be reported to the IRS. Even though the death benefit is not income taxable to your beneficiary, the amount of the death benefit is added to the gross value of your estate for estate tax purposes unless it is owned by a life insurance trust. So, like it or not, if you want life insurance you’re going to have to share your social security number.

I get less grief over the driver’s license number, but the reason for the life insurance company having it is because most life insurance applications require a copy of your motor vehicle record. Most people never think about it, but the type of driver you are does have some impact on your mortality risk.

The application then moves into your occupation. While you do need to provide your employment information, I can honestly say that I haven’t heard that insurance companies necessarily verify your employment. But here is where two other questions come up that people aren’t that keen on sharing the answers to, income and net worth. “Why do they need to know that.” The need is less sinister than those who are concerned about might think. Income and/or net worth are determining factors in how much life insurance a company will underwrite on an individual. For non estate purposes, a multiple of income determines the max. For estate tax purposes, the amount of insurance is determined by the net worth minus the exemption times the tax rate. So, they don’t really care or necessarily check on how much you make, but the insurance companies do have some interest in not insuring someone who makes $20,000 a year for $2,000,000. That goes a bit beyond the whole replacement of income idea.

Next comes a synopsis of the type and amount of coverage being applied for followed by the beneficiary designations. It’s important to note that the application actually becomes part of the policy when approved and issued and the beneficiary designation in the application is actually the only place in the policy where the designation is noted.

This is followed by non medical history covering such things as foreign travel and whether or not you are a private pilot. After that is medical history. The application is kind of a synopsis in these areas. If there is more information needed in non medical history questionnaires are completed for things such as aviation, scuba diving or foreign travel. A more complete medical history is done during the exam.

And last on the list of information needed is a list of life insurance currently in force and whether you intend to replace it or not. This is another area where people get a little testy, thinking that it’s not the business of the company to know whether they are replacing anything or not. But keep in mind that it is the business of the company to know whether they are going to be a party to over insuring you. It is also the business of the company to be compliant with state laws and provide the appropriate forms for replacement.

Bottom line. There are a lot of personal questions on a life insurance application. It’s important to keep in mind that they have have valid, important reasons.