Life Insurance Rates

By Steven H. Kobrin, LUTCF
Copyright © Steven H. Kobrin, LUTCF.
All rights reserved.

Your life insurance rates depend upon the skills of your broker. To illustrate, let's walk through the process of prequalification and underwriting, with a typical high risk consumer. What life insurance rates will he receive?

Life insurance rates, when things go badly

Our high risk consumer will answer "yes" on the initial prequalification questionnaire, in response to some of the questions about medical condition or dangerous hobbies. The agent that doesn't specialize in life insurance is typically untrained to handle these "yes" answers. Therefore, the non-specialist may simply drop interest in the consumer. He may tell the consumer he's uninsurable, or he may leave the consumer hanging for weeks without a return call.

If the broker does specialize in life insurance - but he lacks field underwriting skills - he typically doesn't know all the most relevant follow-up questions to ask, in order to provide the underwriter with the complete story, which should always include mitigating circumstances that can help the consumer's case.

Or, if the broker has some general idea of what follow-up questions to ask, he typically will just send the consumer another questionnaire - without engaging in a thorough personal interview. The problem here is that most consumers will not complete these follow-up questionnaires thoroughly, or truthfully. Therefore, an important part of good field underwriting is the ability to coach consumers - and even sometimes hold their hand - because of the sensitive and personal nature of the questions. These people person skills are essential in order to gain the consumer's trust.

Without trust, the consumer will not open up and key mitigating information - that might have persuaded the underwriter to give lower life insurance rates - will never be discovered. Worse yet, is when an experienced underwriter gets information that they know must be incomplete or not completely correct because "things just don't add up." The underwriter's reaction will be to decline the consumer or to assess a higher premium - called a rating - in anticipation of a higher risk.

Let's say our hypothetical broker has the necessary people person skills, and he wins the consumer's trust and full disclosure. At this point, he must have the flexibility to approach the correct company. The fact is that life insurance companies specialize in the risks they are willing to underwrite. Some carriers are competitive for diabetes, others for hepatitis, and so on. If the broker is not independent - meaning, he is "captive" to a particular company's products - then he lacks the flexibility to match the consumer's needs with the most appropriate product. Clearly, the consumer's best interest may not prevail in this situation.

Or, if the broker is independent but lacks the field underwriting experience to know which company wants which risk, odds are the consumer will be declined or rated. At this point, if the broker made the common mistake of submitting a formal application - and if the underwriter declined or rated the consumer - then the consumer now has negative information permanently placed in his application history. This unfortunate mistake can not be undone.

Now, if the broker knew enough not to submit a formal application at this stage of prequalification - and if the underwriter declined or rated the consumer - then the broker must become a vigorous advocate for the consumer. The consumer's interest must be promoted and protected throughout all stages of prequalification and underwriting. Unfortunately, many brokers lack the knowledge, the motivation, or the people person skills to successfully advocate for lower life insurance rates.

If the broker has all the proper advocacy skills - but lacks strong relationships with the general agencies, or his general agencies lack strong relationships with the carriers they represent - he will still not succeed in the fight on the consumer's behalf. The net result can be higher life insurance rates or a declination.

Next...

At this point, it should be clear how the prequalification process can break down, at any one of many stages. It's a complex process that requires a complex set of skills and abilities. Next, we'll look at the prequalification process when everything goes right and the consumer is properly serviced.

Want to know when the next installment is posted? Subscribe to Steve's free newsletter.