Life Insurance Basics: Needs Analysis, Underwriting, Delivery, and Beneficiaries
Financial needs analysis
Two approaches dominate. Human life value capitalizes the insured's future earnings and services. The needs approach adds up income replacement, debt, education, final expenses, and an emergency fund, then subtracts existing assets and expected Social Security. A plan may be designed to retain capital (spend only interest) or liquidate capital (spend principal and interest).
Underwriting
the producer is the field underwriter and completes the application (Part I identifying information, Part II medical history) plus an agent's report. The insurer may use the MIB, a consumer/inspection report (with FCRA notice), an attending physician's statement, a paramedical exam, or blood/urine testing. HIV testing requires written informed consent and strict confidentiality; genetic information is heavily restricted. Risk classes are preferred, standard, substandard (table rating, which multiplies mortality, or flat extra), and declined. Occupation, aviation, and avocation hazards affect classification.
Delivery and premiums
With a conditional receipt, coverage begins on delivery and payment of the first premium if the proposed insured meets stated health conditions; a binding receipt provides coverage immediately. A statement of good health may be required at delivery. The free-look period (typically 10–30 days) allows return for a full refund. Net premium = mortality minus interest; gross premium = net premium plus loading for expenses, contingencies, and profit. More frequent modes mean a higher total annual cost.
Beneficiaries
Primary and contingent; revocable (the default) or irrevocable (requires the beneficiary's consent to change); per stirpes versus per capita; class designations; minors (guardian or UTMA); common disaster clause; spendthrift clause; facility of payment.
Traps
Misstatement of age or sex adjusts the benefit rather than voiding the policy, and a beneficiary designation is revocable unless it says otherwise in writing.