If you are thinking of buying a life insurance policy, you should know that there is more to it than just calling an insurance company and signing your name on the dotted line. Understanding the business process that the insurance company goes through to issue you a policy prepares you for the experience.
New business refers to the process of collecting a life insurance application. This process requires that you fill out an application for life insurance and then submit the application to your life insurance broker or directly to the insurance company. In many instances, your life insurance agent will help you fill out the application. The insurance company will then process the application through the company's new business department along with the first premium payment, which is generally due when you turn in the application (although many insurers will waive this requirement until it's time to issue the policy). The first premium check is normally not cashed until the application has been approved and the policy is issued. The new business department will process the application while your life insurance agent contacts a paramedical examiner (called a "paramed") to schedule the health exam for you. A paramed is a traveling nurse who visits you at your home or workplace to collect a blood and urine sample for the insurance company. You should ensure that you are doing everything you can to communicate with the paramed so that your exam can take place as quickly as possible. Any delays in the exam will result in delays in getting your insurance policy.
Underwriting is the process of determining your risk to the insurer. The insurance company analyzes the information you supply to the company on the application for insurance. The insurance company also reviews the information provided by the lab that the paramed submits the blood and urine samples to. The insurance company may also contact you directly for another interview and to review any discrepancies on the application or discuss any potential issues discovered in the samples collected by the paramed. If you have any health issues, an attending physician's statement may be ordered. The attending physician's statement, also called an APS, is a statement by the client's doctor explaining your health status. You may wish to contact your doctor, and tell him that you would like the APS sent over to the insurer immediately to help speed up the process of getting the policy approved.
Commissions are paid to your agent, if you used one. Otherwise, commissions are retained by the company. These commissions are part of the expense of purchasing life insurance. Even if a company does not employ outside agents, it may use the money ordinarily spent on paying an agent to increase profits to the company. Part of this process involves cashing your premium check, since this is where commissions will be paid from. Your life insurance policy will be issued once the check has been cashed. The initial commission is referred to as "FYC" or "first year commissions."
If you used an agent or broker, the policy may pay a trailing commission (commissions payable after the first year) to the agent or broker. A trailing commission is a commission that your agent earns each year based on premiums you pay to the policy.
Each year you keep the policy, the policy counts towards a persistency rate for the broker/agent and insurance company. Persistency simply refers to the number, expressed as a percentage (ranging from 0 to 100 percent), of clients that are retained for the agent/broker and insurer from the previous year.
A death claim is when your beneficiaries collect on the death benefit of your policy. The claims process requires that your beneficiary fill out a death claim form and submit the form with a copy of the death certificate to either your broker or the insurance company for processing. The company will then pay out the death claim. Normally, this happens within 30 days, but the claim may be paid sooner than this. All states have a maximum time limit for an insurer to pay out this claim that normally ranges from 30 to 60 days. So, your beneficiary should get the money within this time frame, if not sooner.
- "Life & Health Insurance, License Exam Manual, 6th Edition"; Dearborn Financial; 2004
- "Life Insurance"; Kenneth Black, Jr., Harold D. Skipper, Jr.; 1994