How life insurance is priced

Life insurance is priced based on your life expectancy, the face amount you request and the length of the policy, whether it's the duration of your life (permanent life) or a specific period (term life).

Because your current and past health conditions impact your life expectancy, insurers want to know as much as possible about your health condition. Common conditions such as high blood pressure, heart disease, obesity, cancer and depression can all raise your premiums or even result in your being declined.

Based on your medical history, you'll be grouped into a category such as "preferred plus," "preferred," "standard" and "substandard." Your category ultimately determines your premiums. For more, read how life insurance companies view you: Underwriting categories.

Insurance buyers with severe health conditions or a combination of conditions can find it hard or impossible to find life insurance. They are known as "impaired risks." Local agents may not be experienced enough to find a company that specializes in insuring people with certain medical conditions. Fortunately, impaired-risk specialists have expertise in knowing where to direct applications for folks with medical conditions. For more, read how impaired-risk specialists find life insurance for people with medical problems.

The life insurance buying process

The life insurance applications process is paper-intensive, can take 30 to 45 days and often seems intrusive for people who value their privacy. A face-to-face paramedical examination is generally required for policies in excess of $100,000, which means, at minimum, giving both blood and urine samples to a paramedical professional.

Expect questions in detail regarding your lifestyle, intended foreign travel destinations, your family health history and your personal health history.

Expect questions in detail regarding your lifestyle, intended foreign travel destinations, your family health history and your personal health history.

Sometimes multiple interviews are required in order to verify your information. The paramed examiner typically asks these questions face-to-face and often insurance companies will conduct follow-up telephone interviews so that you can verify the first set of answers. Regardless of the type of life insurance you buy, most policies require you to meet certain guidelines regarding your lifestyle and medical history.

For more, here's the lowdown on life insurance medical exams.

If it sounds tempting to shortcut this process by withholding information or outright lying, don’t do it. Policies that were sold based on applications that contained misleading information can be voided at claim time. False information on insurance applications is fraud.

Insurers will likely report your medical exam results (reported as numbered codes) to MIB (formerly called the Medical Information Bureau), which maintains a database of those who have applied for life, health, disability and other insurance in the last seven years. If you've given different answers to medical questions in the past, it will raise a red flag with MIB. The goal of the MIB database is to reduce fraud.

All standard life insurance policies cover death by any cause at any time in any place, except for death by suicide within the first two policy years (one year in some states).

If you want to avoid the underwriting process, you have two other, more expensive, options:

• Simplified issue life insurance can be purchased after answering only a few medical questions. There is no medical exam required. However, if you report health problems, you will likely be declined. Also, if you are healthy, or even if you have some negative medical history, an underwritten policy is still going to be your least expensive choice.
• Guaranteed issue life insurance is sold to anyone who applies (up to an age limit) and is by far the most expensive way to purchase life insurance. This should be considered only by those who are declined for everything else but still need life insurance. These policies have graded death benefits, meaning your beneficiaries won't receive the full death benefit until several years into the policy.

In naming a beneficiary, keep in mind that the life insurance company will want to see only the names of those who are financially dependent upon you. An acquaintance, friend or relative, absent of a financial relationship, will not do.