We all can agree that a life insurance application is an objective document that accurately describes an applicant’s personal and medical history, as well as an applicant’s risk-worthiness for an insurance company.
If the app tells the story, what else is needed? Most advisors believe that the job is done when they submit the app, since very few consider having a cover letter accompany their life applications. And that’s a missed opportunity. Advisors don’t consider the positive impact a cover letter can make in helping the applicant “come alive” to the underwriter who receives the application. As such, it’s a perfect tool for an advisor to talk about other aspects of a client’s life that may be beneficial to the outcome.
A carefully written cover letter also sends the message that the advisor is proactive and committed to securing the best possible offer for the client. Having the full story expedites the underwriting process by answering an underwriter’s questions before they’re asked.
Often it’s the back-and-forth between underwriter and advisor that draws out this process and plants seeds of doubt about the advisor’s competence in the applicant’s mind. The added delay also can tarnish the client’s satisfaction in getting a problem-solving policy issued, and in most cases, the advisor must “resell” the need for the coverage.
What should go into an applicant’s cover letter? The letter should paint an accurate, thoughtful picture of the applicant for the underwriter, including employment, life achievements and social involvement. What can the client’s lifestyle add to the picture? Are there hobbies, special interests, or exercise regimens that may improve the underwriting or answer possible questions or concerns?
For example, we have seen this work successfully for body builders when underwriters were concerned about an applicant’s physique. The cover letter is the place to share this information. If you know the client well and can vouch for the person’s character, let the underwriter know about it. Are there any other applications pending on the life of the applicant? If so, what is the amount and with what insurance company? Will the total amount of the coverage being applied for be placed?
Although some underwriters downplay the value of seeing an applicant’s photo because they can’t verify the identity, it can pay dividends when you attach a copy of a photo ID (a driver’s license, for example). This identifies the applicant and validates any other photos presented. In recent months, we had two “build” cases where providing a photo of the applicant actually improved the final underwriting class.
For business applications, the cover letter should address how the sale was developed. If the purpose of the application is to fund a buy-sell agreement, let the underwriter know how the value of the business was determined. Has there been a recent valuation? Are all of the owners covered to satisfy the agreement? If any partners are applying for coverage from other insurance companies, that information should be noted as well.
If the purpose of the sale is key person life insurance, address any special circumstances that stress the value of the applicant to the business. Relate whatever industry experience the applicant has and how that experience contributes to the company’s value. If the application is being made to cover a business loan, state the reason for the loan and the terms of the arrangement.
If the application is for estate planning purposes, the cover letter should indicate how the value of the estate was determined. Are there special needs individuals involved or any unusual pattern of gifting or charitable interests? Is there a trust being created that will own the policy, and might that lead to a replacement application being submitted later in the underwriting process? These are issues that, if explained upfront, can smooth and shorten the underwriting timeline.
For applications where the applicant has a criminal background, address the probation and parole timelines, and give the underwriter a sense of what the applicant’s life has been like since the debt to society was paid.
If you are applying for larger amounts of coverage but think the applicant’s financials could be a concern, the cover letter should provide assurances of why the coverage is justified. Because advisors know that some clients tend to minimize their income and assets on applications, it’s the advisor’s task to identify all sources of income to build the case for the benefit being requested. Assets such as club memberships, company cars, performance bonuses and stock offerings can enhance the amount of coverage an applicant can qualify for, but it’s up to the advisor to bring the necessary information to the underwriter’s attention.
In cases where applicants have an avocation that can require a rating, a cover letter can help. Typically, any kind of questionnaire about the activity will just address the basic statistics and certification to perform the activity. A cover letter can speak to any awards, advanced training and skill levels that the applicant has attained, as well as any specific safety measures that can put the underwriter more at ease with the risk.
Although only a small percentage of life insurance applications are accompanied with an advisor’s cover letter, those advisors who do send a letter experience an easier underwriting process. Make it a habit to bring your client alive in the eyes of the underwriter by providing an introduction. It will add efficiency to your applications and give your client the most favorable impression possible with the person making the final underwriting decision.