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Underwriting Mortgage Term Life Insurance

When you take out a mortgage term life insurance policy, you will need to go through a process that is called underwriting. During the underwriting process, the various risks you present to the insurance company are assessed and rated based on the likelihood of whether or not they will occur. These risks include those automatically introduced by your age, weight, and health history as well as those interpreted by your hobbies, career, and habits.

The mortgage term life insurance company underwriters will go through each of these risks and decide whether it affects the price and issuance of your policy. Once they are done, they will have a final premium offer if they are going to approve your policy, or they will decline you. The premium offer may be higher than the original premiums you were quoted if it includes some additional charges to help compensate for any additional risk they think you bring.

Paramedical Exam

In order to underwrite your mortgage term insurance policy, the underwriters for the insurance company will need to get some additional information about your health—beyond what you complete on the application. One of the things they will do in order to get this additional information may be to request a paramedical exam.

During a paramedical exam, a medical technician will visit your home or office and ask you some questions. They may also take your blood pressure and take blood and urine samples. The questions they ask and the samples they take will depend greatly on the amount of mortgage term insurance you are applying for as well as your age and the term of the policy.

Paramedical exams are easy and flexible. They take about twenty minutes and can be done in whatever location is most convenient to you. They can also be done during morning, daytime or evening hours so they won’t interrupt any important meetings or appointments you have.

How Your Hobbies affect Mortgage Term Life

One of the considerations that underwriters will make when evaluating your application for mortgage term life is the kind of hobbies you have. While many people have relatively sedate hobbies like fishing, knitting or dancing, others have hobbies that involve risky extreme sports and exposure to unsafe locations on a regular basis.

Naturally, the more dangerous your hobbies are, the more risk you present to the insurance company and the higher your premium will be. If you take part in hobbies like bungee jumping, scuba diving, parasailing and others, you may be asked to fill out a supplementary form called an avocation form. This form will ask you all about the hobbies you enjoy, the location of your hobbies, the type of equipment you use, and the frequency.

The goal of the avocation form is to get a better handle on just how risky your hobby is and whether an extreme sport is something you did once or is a major part of your lifestyle.

Aviation Questionnaire

If you are a hobby flier who takes small aircraft to various destinations, if you're even still in the process of obtaining your pilot’s license, the insurance company is going to ask you to complete a special aviation supplemental form when you apply for mortgage term life insurance.

Flying small aircraft introduces another element of risk you present as an insured party, and the insurance company is going to want details about the type of aircraft you fly, how many hours you log, how often you fly, and what distances.

Once they have evaluated your aviation form, the mortgage term life insurance underwriters will determine whether they should add an additional amount to your premium in order to compensate for the additional risk you bring. In some cases, they may add a temporary extra that just lasts for as long as it takes for you to get your pilot’s license, or they may add a longer-term fee.

Beneficiaries and Insurable Interest

One of the things that the mortgage term insurance underwriters will look at when evaluating your application is the beneficiaries you have chosen. While it might not seem like it has any bearing on your approval, it actually does. The insurance underwriters must see that there is an emotional and/or financial interest and potential loss in the person who you name as your primary insured. Once this is established, the policy can generally be approved.

Insurable interest is usually found in immediate family members rather than friends and neighbors. If you have a special circumstance and want to explain to your underwriters why the individual you named has an insurable interest, you can attach a letter.

Generally, if an underwriter finds question with the individual you have named as beneficiary, your mortgage term life insurance policy will not be declined, but you will be asked to either change it or explain why the named individual does have an insurable interest.

Medications and Underwriting

When you fill out your application for mortgage term insurance you will need to disclose comprehensive information about your past and current health, including any medications you take. Your medications speak volumes about what your physician thinks about your health and what he or she is concerned about in your future. Seeing them can give underwriters a detailed look at your overall health and prospects.

When you provide the list of medications to your underwriter, be sure to give a complete list. You should tell them every prescribed medication that you take, the dosage, and what it's prescribed for. For instance, if you take Glucophage, then you will let them know that it is for Type 2 Diabetes. If you aren’t sure why your doctor prescribed a particular medication to you, then you can call the doctor and ask before you complete the application.

MIB Report

When you apply for mortgage term life, you will complete a medical questionnaire in the form of an application. You may also have supplementary forms to complete and a paramedical exam to take before underwriting is done. But there is one thing that an insurance company will obtain on its own to help give them some indication about your health history, and that is a Medical Information Bureau report, also known as an MIB report.

The MIB report is a compilation of information reported to the organization by other insurance companies. So if you have applied for other insurance and the company found information about you by looking at your application, medical records, or other data, they will report it to MIB.

The insurance company that has your mortgage term life application cannot share your MIB report with you, but you can contact the Medical Information Bureau for a copy of your report before or after applying for mortgage term life insurance.

Material Misrepresentation

When you fill out your application for mortgage term insurance, everything you say will be used to evaluate your for coverage. That means that each admission of past and present health concerns could impact the premium you are charged and whether you are approved.

It might seem tempting to leave out some of the details that help the insurer better understand your health. But by being dishonest on the application—and any omission is considered dishonesty—you could be setting up your family for disappointment.

If you should pass away and the insurance company finds that you lied or omitted something on your application, it may be seen as material misrepresentation. Material misrepresentation invalidates your policy and will result in your family seeing a return of premiums paid rather than a payment of the death benefit of your mortgage term insurance policy. This could put them in a financial bind that might have been prevented had you been honest about your health.

Underwriters: Interpreting Data

An underwriter’s job is to protect the mortgage term life insurance company and all of its clients by getting an accurate gauge on the risk that each proposed insured presents. In order to do that, they must look at the combination of facts in front of them, including:

• The application
• The medication list
• The medical records
• The MIB report
• The motor vehicle report
• The supplementary questionnaires
• The paramedical exam

After reviewing all of these items and any other pertinent information, the mortgage term life insurance company underwriters will then start to interpret all the data in front of them. After reading the medical records and looking at medications prescribed, they may interpret that you are at risk for acquiring heart disease or some other disorder or chronic illness that increases your risk.

These interpretations will factor into whether they approve your policy and whether or not they decide to add an additional amount to your premiums. If you feel that any of their interpretations are inaccurate, you can ask your doctor to write a letter refuting them.

Filling Out an Application for Insurance

After you have gone over all the mortgage term life insurance quotes you have received, it will be time for you to actually apply for a policy. The first step in applying is to fill out the insurance company’s application. Applications are generally fairly straight-forward and easy to complete. The first section will likely be your basic information such as date of birth, social security number and address. You will need to fill in a current phone number so that the insurance company can reach you with any questions.

Next you will be asked medical questions, which can be complicated. If you aren’t sure of any answers, contact your physician’s office and ask for assistance. You will also be asked to list your medications.

Next you will be asked to design the mortgage term life insurance policy. You will need to enter the amount of death benefit you want, the length of the term, the payment method and frequency and the names of the beneficiaries.

Depending on your lifestyle and hobbies, you may also have supplementary documents to supply.

Paying the Initial Premium

Once your mortgage term life insurance policy is approved, you might think that you are safe, and if something happens to you, your family I covered. But until your initial premium is paid, there is no actual active insurance and no death benefit.

A contract with an insurance company is relatively easy to understand. The insurance company agrees to pay out your mortgage term life insurance claim to the named beneficiary as long as there is no material misrepresentation found on your application. In exchange for this guarantee, you agree to pay the premium payments at every premium payment interval. If you do not come through on your end of the bargain, the policy lapses and there is no benefit.

When your policy is initially approved, there is no binding agreement in force until such point as you complete your half of the bargain and make your payment. In most cases, you will submit your initial premium with the application so that when the policy is approved it is active.

Ten Day Free Look

When you apply for mortgage term life insurance coverage, there is no policy to review. Instead, you talk to your agent and the insurance company to ferret out the terms of the policy, design your coverage and complete your application, and pay your initial premium. It is not until your actual policy is issued that you finally get a chance to read the details of the coverage yourself.

Each policy comes with a ten-day free look period, so you can take the first ten days after you receive the policy to read it and get to know all the details and caveats. You can learn about the payout options that your beneficiaries have, the process of reinstating a lapsed policy, and the claims process.

The ten-day free look period begins on the day that your agent delivers your mortgage term life policy. If you decide that you don’t want the policy during that time, there are instructions inside on cancelling it and getting a refund of your initial premium.

Answering Underwriting's Call

The underwriting process for your mortgage term life policy is not exactly straightforward. While the assessment of the data presented is clear, the underwriters can be left with a lot of questions after reviewing your application, medical records, paramedical exam, MIB report and paramedical exam results.

If the underwriter has questions, he or she may call you directly or may call your insurance agent who will then contact you. In order to get your application processed as quickly as possible, it is important to make sure that you are accessible by phone.

Make sure you put a correct phone number on your mortgage term life application and that you specify what hours work best for phone calls. Do not put down hours that you are at work if you will be unable to answer personal questions comfortably during that time. Remember, the underwriters are looking at your health and may need detailed information that you are uncomfortable disclosing around coworkers.

Signing the Delivery Receipt

When your mortgage term life insurance agent delivers your policy to you, he or she may ask you to sign a form acknowledging that you received it. This form is called a delivery receipt and is important because it is used to kick-start your ten-day free look period.

Since you don’t get to read the mortgage term life insurance policy and understand some of the nuances until you get a copy, insurance companies want to give you a little time to read it and decide whether you want to keep it. This time is called a ten-day free look period. It begins on the date that the policy is delivered to you.

In order to ensure that you get the full ten days to which you are entitled, the insurance company asks that you sign a paper that states what day you received it. Ten days from the date on this paper will generally end your free look period and will signify the time that you are no longer able to get a refund of premium.

Medical Records, Underwriting and HIPAA

One of the best sources of complete medical information about you is your medical records. These documents hold the results of all your latest lab tests and physicals, have notes regarding all your prior and current health concerns, and include comments from your physician about possible diagnoses and problems.

Many mortgage term insurance policies will be underwritten with the help of the proposed insureds’ last five years’ worth of medical records. Because of the Health Information Portability and Accountability Act (HIPAA), your underwriter will need special permission from you in order to obtain those records. Generally, there will be a separate section of your application that you can sign, giving them permission to request them.

In rare occasions, a physician’s office might require a patient to obtain his or her own records and send them to the insurer. If this is the case, the proposed insured will be asked to deliver the records to the insurer in the same sealed envelope that they were in when they picked up them from their physician.

Table Rating and Extra Premiums

If underwriters decide that you are a riskier applicant than average in your age and gender, they may add an additional premium on to your policy.

This additional premium can be in the form of a flat extra, which is a set dollar amount that is charged on top of your regular premium. The flat extra might be permanent, meaning it will remain as long as the policy is in-force, or it may be temporary, meaning that it is only meant to supplement your premium when you are engaging in especially risky behavior.

Another way of adding additional premium to your mortgage term life insurance policy is to table rate the policy, which is a process of signing an additional percentage of your premium to your payment amounts. For instance, if you are rated table one, then they might add an additional 25 percent to your premium. Table ratings are generally permanent.

Motor Vehicle Reports

Most people drive a car every day. From going to and from work to running errands to taking a lazy weekend drive, the car is almost an extension of our bodies—like legs taking us from place to place. But in addition to transporting you from location to location, cars can also give indications into behavioral patterns, which may pose additional risks to your life.

A motor vehicle report (MVR) can be used by your mortgage term insurance underwriter in order to get an insight into your driving habits. MVRs show any traffic tickets and accidents in which you have been involved. Getting this information can help underwriters determine whether you are a habitual speeder, someone who runs red lights or follows other drivers too closely, and can generally indicate whether your driving is safe and responsible or something that puts you at higher than normal risk for an accident.

Mortgage term insurance underwriters cannot share your MVR with you, but you can obtain your own copy by contacting your local DMV.

Smoking Classifications

Mortgage term life insurance applications ask many questions about your life and habits. One of these questions regards your history with smoking. Most applications will ask whether or not you have used any tobacco products (including chewing tobacco) over the past two years.

This can be a difficult question for many individuals to answer because using tobacco over the past two years could mean that you are a pack-a-day cigarette smoker or a once-a-month pipe smoker. Either way, to answer the question honestly, you must admit that you have used tobacco, no matter how rarely, during the time period discussed. But if you are an occasional smoker, you can include a letter with your application explaining your use.

Many insurance companies do not give a preference to occasional smokers and charge a smoking rate no matter what, but some are more lenient on the occasional pipe and cigar smoker. Your best bet is full disclosure with the hopes that your mortgage term life insurance company will be lenient.

Understanding the Graded Death Benefit

If the underwriters feel that you are an excessively high risk to the insurance company, they may decide to issue your mortgage term life policy as a graded death benefit. When you have a graded death benefit, it means that your mortgage term life death benefit is not 100 percent payable when the policy is issued, but instead only a percentage is.

For instance, your graded death benefit may offer no death benefits payable if your death occurs during the first year that the policy is issued. (If this is the case, then premiums may be returned when death occurs.) Then, if your death occurs during months 13-23, 50 percent of the mortgage term life death benefit may be payable. Finally, in the third year, 100 percent of benefits may be finally payable.

A graded death benefit policy offers a nice compromise between mortgage term life companies and policyholders with chronic illnesses or high risks.

Reinstating a Lapsed Policy

If you neglect to pay your mortgage term life insurance premiums on time, your policy will lapse. Life insurance policies generally have no grace periods, so you must pay on the due date or you will no longer have the coverage that is so vital to your family.

Once you have the policy, you might be wondering what you can do if you should accidentally miss a premium payment. In most instances, you can reinstate a lapsed mortgage term life insurance policy. In order to reinstate, you will need to fill out a reinstatement application and make the premium payments you missed. Your insurance company might also ask that you pay a late fee or interest penalty.

While reinstatement offers hope to many lapsed policyholders, it doesn’t guarantee that your policy will become active again. Reinstated policies are underwritten all over again and if your health has changed since the policy was initial issued, the reinstatement might be declined or your premium might be increased.

Premium Increase Factors

There are a lot of different factors that could go into your insurance premium being higher than you expected, including:

1. Smoking status—If you are quoted a non-smoking rate but the mortgage term life insurance company finds that you are a smoker, or have smoked recently, you could find that you have a much higher premium.

2. Health—After reviewing your application, medications, medical history, paramedical exam and other data, the mortgage term life insurance underwriters may find you an excessive risk and assign additional charges to your premium.

3. Hobbies—If you regularly take part in risky hobbies like extreme sports, scuba diving, bungee jumping, etc. then you could find a higher mortgage term life insurance premium waiting for you when the policy is finally approved.

4. Travel—If you travel frequently to risky areas, the insurance company may decide to increase your premium in order to compensate for the risk that your travel exposes them to.

Travel Questionnaire

In this increasingly global economy, many individuals travel frequently for business. With civil uprising and political unrest becoming a daily news event, this everyday business travel is becoming more and more risky.

Mortgage term life insurance companies must do what they can to fully understand the risk that you present to them. If they don’t, they could end up taking on more risk than they can actually afford and may end up under-pricing policies, which puts all of their policyholders at risk.

That’s why, if you travel often for business, you may be asked to complete a supplementary questionnaire that details your travel habits. The biggest concern is your exposure to areas of political and civil unrest, declared and undeclared war, and terrorism because they increase your risk of death.

Be sure to completely outline your duties when you travel and the areas you generally travel to so that the mortgage term life insurance underwriters have all the pertinent details to price your policy accordingly. Don't leave out any personal travel details that are also pertinent.