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Why does an insurance company need to know my net worth before it grants me life insurance?

February 4th, 2010 | | Tags: , , , | 8 Comments | |

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I can understand why they want to know a bit about me, especially with regard to health records. However, this insurance company wants to see bank statements. My point of view is that the only important thing moneywise is that I can pay the premiums or my insurance will lapse. I am new to this so I would be interested to hear from someone more familiar with the life insurance game.

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8 Responses to “Why does an insurance company need to know my net worth before it grants me life insurance?”

  1. aaron p Says:
     February 4th, 2010 at 5:01 am

    For large amounts of insurance, they would normally want some form of third-party financials to make sure you are not over-insuring yourself. This might be a signed copy of P&L, cash flow, and income statement for business purposes or 1040 and account statements for individuals. Assuming you have other advisors (accountant, portfolio manager), there may be other ways to verify your income and net worth besides your bank statements.

    They just want to make sure someone with a $50k income and $100k in assets isn’t trying to get a policy for $10m. The underwriter’s due diligence increases as the life insurance amount goes up.

  2. Insurance Pickle.com Says:
     February 4th, 2010 at 5:01 am

    I certainly understand why they want to know your net worth because they want to make sure the amount of insurance you’re buying is relative to your worth/ability to earn income. However, I’ve never seen an insurance company request bank records. AND, someone’s bank records has no bearing on their worth.

    What company is this and are you sure it’s not a scam?

  3. mbrcatz Says:
     February 4th, 2010 at 5:01 am

    It’s standard procedure.

    See, if you have $5 in the bank, and you’re asking for $50,000,000 of insurance, it’s kind of suspicious – there’s definately more for someone to gain, by you being dead. They’re looking to see that you have a REASONABLE amount of insurance, for what you’re worth.

  4. jlf Says:
     February 4th, 2010 at 5:01 am

    That’s a new one on me. I would look for another insurer.

  5. Lauren F Says:
     February 4th, 2010 at 5:01 am

    They might be trying to advise you to put your life insurance in a trust in order to avoid estate taxes when you die. This only applies to estates worth more than $3.5 million, though, so unless you are very wealthy it sounds funny to me.

    Why not ask the ins company?

  6. FromTheTop Says:
     February 4th, 2010 at 5:01 am

    mbrcatz said it perfectly…

    Lets say you work part time at the local grocery store, you rent a small apartment, and don’t own a vehicle….yet you’re requesting a million dollar life insurance policy….it doesn’t add up.

    Good luck to you. Life insurance is one of the most important things you’ll ever buy.

  7. Insure411 Says:
     February 4th, 2010 at 5:01 am

    It’s all about suitability. We live in a litigious society and everyone wants to sue everybody else. This is how the insurance company can prove your life insurance purchase was a "suitable transaction."

    So if you change your mind down the road and claim that you were duped, they would then have some paperwork to defend themselves with.

  8. vaughn_nebeker Says:
     February 4th, 2010 at 5:01 am

    It a fraud gimmick. it trying to know before hand with it has to pay up and or not . most corit will throee it out.. A judge can not rull on a before-o’s fact-o’s. what the insurance adjusterer is asking is unmissablesable. it defeatseat’s the hole perpius insurancerince.

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