Insurance Q&A: “How much do insurance agents make?”

Just like any other commission based sales job in the world, the sky is the limit as far as income goes for an insurance agent. However, it’s not that cut-and-dry.

There are a number of ways to get into the industry as a sales agent and a lot of products to potentially master and sell. How much you get paid depends on where you start.

It’s also worth noting that, just like any other sales job, you should not expect to earn very much money until you have built a solid client base. This can take anywhere from 2-5 years depending on how hard you beat the pavement.

Expect 10 “No’s” for every single “Yes.” This means you will likely “pitch” to 100 people to sell 10 insurance policies, which should be at least half of the sales you’ll need to make to earn some decent money every single month. If you’re not already scared, keep reading.

How Property and Casualty Insurance Agents Are Paid

Typically, an insurance agent is paid a commission, or percentage, of the total insurance premium the insurer charges for a given policy. Property and Casualty (auto, home and business) insurance agents typically earn anywhere between 7% and 20% commission on each policy sold. If you forced us to come up with a solid number, we’d say 12% is what you can expect on average.

Example: $1,000 auto insurance policy at 12% commission would net you $120.00

Each year, assuming your client is still happy and continues to insure with you, you will earn a “renewal” commission. Renewals are where the money’s at, as you do not have to advertise or spend time quoting the policy for it to renew.

If the client makes the renewal payment, you get paid again…it may even happen when you’re sleeping. Renewal policy commissions are often slightly less than the initial commission you get paid for the “new business.” New business may be 15% and renewals only 10%.

As you can see, a few years into the process of building your “book” of business, the renewals from previous years virtually make your income exponential. There are few products you can sell where you get paid each year, whether you worked with the customer or not.

Example: Last year’s auto policy from the example above renews ($120.00) and you sell a new auto policy on the same day the following year, earning another $120.00 – your income for that day is now $240.00. Not a bad day’s work.

The average insurance agency, if run well, should have a target of retaining 90% of the previous year’s business.

You might lose 10% of the previous year’s business from unhappy clients who didn’t feel their insurance claim was handled well, so they shopped around and found cheaper insurance…or maybe their third cousin became an agent and they simply switched their insurance policy to him or her.

How Life & Health Insurance Agents Are Paid

Life and Health insurance agents get paid a little differently. There is still a commission, but quite a bit more is paid upfront compared to property and casualty insurance. There are also renewal commissions, but these are paid at a much lower percentage (although maybe not less overall money than a property and casualty policy, as the premium is often substantially higher).

Example: You sell a $10,000 whole life insurance policy and receive 55% commission for the first year, which is $5,500. The renewal commission may be as low as 3%, which still nets you $300 per year.

Some life insurance companies may pay as much as the entire first year’s premium as a commission, and then not offer renewal money. The combinations of new and renewal commission for life and health insurance can vary greatly depending on the company.

Do You Want to Own an Insurance Agency or Work for One?

How much money you earn as an insurance sales agent can also vary greatly based on whether you start your own agency or work your way up at an existing agency. Of course, there are pros and cons to both options.

In the long run, if you’re getting into insurance sales so you can afford a yacht, being the agency owner is your goal.

It’s the same as any other industry. You make more money as an employer (if you’re good enough) than as an employee, but it requires more work.

Insurance Agency Owner

Expect to make much less in the short run if you open your own insurance agency, as every dime of your income from sales will be put back into keeping the bills paid and the doors open for the first couple of years. BUT, and this is a huge “but,” you’ll make significantly more money in the long run as an agency owner…if you can manage to stay in business.

Many insurance agencies are handed down to family members or simply purchased by someone who has enough money to buy one and doesn’t want to take the time to build the business from scratch.

Agent in Someone Else’s Insurance Agency

If you are new to the industry, you will likely start as a Customer Service Representative (CSR). If you are good enough at the job, and decide you like insurance enough, you may be able to “move up” to an agent, working on behalf of your employer.

The upside to this method is that you earn money immediately upon selling an insurance policy. You do not have to pay the phone bill, rent, utilities, insurance (yes, insurance agents need insurance), etc. That’s the owner’s problem.

You might expect to have your expenses paid, and in a large enough insurance agency, a processor to do your paperwork…which is a good portion of the job.

The downside is that you will be splitting your commission earnings with the owner of the agency you work for. After all, the insurance companies who offer these products will not let “anyone off the street” represent them and sell their insurance. If you’re new to the industry, you will have to ride someone else’s coat tails until you get your footing.

Captive or Independent?

You will also have the option of being a captive agent or trying to become an independent insurance agent. Captive agents typically sell insurance for only one company, whereas an independent agent sells insurance for multiple different companies.

Captive Agents

For captive agents, think Farmers and State Farm. This option is great for people who don’t know the first thing about insurance. Pass a “sales aptitude” test and you’re off to the races with these types of insurers.

Many captive agents switch over to becoming independent agents after enough time in the industry, as captive insurers typically have a limited “appetite” from an underwriting standpoint. You will turn many clients away if State Farm does not want to insure the individual because they are “too risky.”

After becoming a successful captive agent and building your confidence, you may decide that you want the ability to insure anyone who walks through the door. This means you want to be an independent agent.

Independent Agents

It’s much harder to become an independent agent, as you actually have to prove you know what you’re talking about to represent the various insurance companies.

You’ll very likely need to demonstrate that you have previously sold a lot of insurance to qualify for a contract to sell insurance products independently. The commissions are higher here, but you need to satisfy multiple insurer’s requirements from a policy standpoint.

You may represent 10 companies, and each of them could expect you to sell a minimum of five policies per month, or they will terminate your contract and not allow you to sell their product anymore.

So going independent will likely require a few years of experience in the industry, starting by working with an existing independent agency or buying one.

To sum it up, there are a number of different ways you can make money as an insurance agent, and what you put in is what you’ll get out, much like any other sales job. Don’t expect it to be easy.

Insurance Q&A: “What is a waiver of premium provision?”

We purchase insurance with the idea that it’ll be there when we need it. But an obvious downside is that it doesn’t work if you don’t pay for it.

So what happens if you become ill or disabled and cannot work, and therefore cannot pay your premiums?

You guessed it; your insurance company will cancel your policy. Can you blame them? McDonalds probably won’t give you a burger if you don’t pay for it, so why should insurance be any different?

Part of being a savvy insurance consumer is being educated on what types of coverage are available to ensure you do not suffer financial setbacks as a result of an unplanned event.

This is where the “waiver of premium provision” will come into play on a life, health or long term care insurance policy.

No Cost Insurance?

Not so fast. This is not a free insurance policy. The waiver of premium provision is a rider that can be attached to an existing policy for an additional cost, which may vary based on your age, risk level, policy type, and more.

The rider suspends your insurance premium payments in the event you become ill or disabled and cannot work (and pays premiums).

So it’s sort of like insurance for your insurance. That’s right. You pay extra money while you’re healthy, but will be in good shape in the event something throws you off track.

Not a bad idea. After all, the last thing you need if sick or disabled is a cancelled life, health or disability policy.

How It Works

What does the provision look like in action? Well, it’s not automatic.  You have to provide evidence to the insurer that you aren’t physically able to work.

This is almost always accomplished by consulting a physician who can verify that you are in fact disabled or too ill to make ends meet.

Evidence that the “event” took place during the specified policy period is also a requirement. Proving this is the doctor’s duty as well.

After the facts are established, insurers may demand a 90-day waiting period before they actually waive premium payments.

Keep in mind that this rider is not designed to stop premium payments for minor events. If you’re not “out of the game” for at least 90 days, expect your insurance bills to keep coming.

The good news is the waiver is usually retroactive, meaning once the timeline requirements are met (90 days pass), you can expect to receive the money you paid during the waiting period.

Read more: Why you need health insurance.

(photo: Gruenemann)

Insurance Q&A: “Is life insurance tax deductible?”

The answer depends on who’s asking. Generally, personal life insurance premiums are not tax deductible.

So if you have a term life or whole life insurance policy, you are not able to deduct the premium payments on your annual tax filing.

On the other hand, your employer may deduct their portion of your life insurance premium if they sponsor the policy, as it is one of their many costs of doing business. If the employer pays the entire premium, they can deduct the full amount from their earnings for the year.

Employers are also allowed to deduct any partial payments they make if they share in the overall expense. This is probably more common than them paying for all of it.

For the record, an individual isn’t able to deduct their portion of the life insurance expenses even when shared with an employer. You’re simply out of luck on the tax side of this equation.

What If I Own My Own Business?

Self employment can be a gray area when it comes to life insurance and tax deductions. Just like your insurer, the Tax Man has seen it all and is not easily fooled by business owners who attempt to take advantage of the code.

While your tax advisor is the best person to talk to about this topic, you can generally expect that if your company is small enough (sole proprietor), or your company life insurance plan is only set up to insure you, as the company owner you probably won’t receive a tax break for the premiums paid.

You might have some wiggle room if your company’s life insurance program sponsors (or is offered to) every employee. This can get complicated, so again, speak to your tax advisor to make sure you are not on the wrong side of legal here.

One Silver Lining!

There is a potential silver lining when it comes to life insurance and taxes. Since life insurance premiums are not tax deductible, the policy payout may not be taxable.

In most cases, the benefits of a life insurance program are typically not taxed when they are paid out. Of course, you’re not going to be around to enjoy that, but your beneficiary will take comfort in that and that’s really who the policy was purchased for in the first place.

Of course, just like there are exceptions with tax deductions for premiums, there are exceptions to the taxability of benefits. Be sure to discuss this with your life insurance agent and your tax advisor when evaluating your coverage needs in the first place.

When Tax Deductions Don’t Matter

You may find that the potential savings from a tax deduction on life insurance premiums pale in comparison to how much you can save by simply shopping your premium with multiple insurers.

After all, you may be throwing money out the window by paying too much for your policy in the first place.

Shop your premium and gather life insurance quotes to ensure your bottom line is protected…paying less by switching life insurance companies could outweigh any tax benefits.

Read more: What do insurance companies test for life insurance?

(photo: gfpeck)

Spoiler alert! Yes, it is generally bad news to allow your insurance to lapse, no matter what type of insurance you’re talking about.

Insurers don’t like it for a few different reasons, and in most cases, you can expect to shell out more of your hard-earned dollars if you let your coverage expire.

Why Do Insurers Hate Lapsed Coverage?

Insurance is a business of promises…and paperwork…lots of paperwork. Any time a policy lapses, i.e. your coverage stops because you stop making payments on time or let a policy expire without another policy lined up, the insurance company has more work to do.

It begins with the agent or customer service representative who has to take you phone call in order to set up a new policy or reinstate the policy that lapsed.

Once the phone call is handled, the paperwork begins. You may have to sign a “statement of no loss” if you are reinstating an existing policy (which proves you didn’t have a claim while the coverage lapsed) or completely re-write your insurance policy, which means starting at the beginning again.

Big deal, right? Some paperwork. Why are insurance companies complaining about paperwork? Well, there are also financial costs involved with getting you back on track.

Not to mention the profit the insurer expects to make is calculated assuming your policy only has to be “touched” once per term, assuming there is no insurance claim activity.

(How do insurance companies make money?)

Additionally, the insurer may have to re-run your insurance score, MVR and C.L.U.E reports, which all cost money.

Each time the policy is “touched,” the overall profit margin shrinks. Again, who cares, right? Insurers make a lot of money and this is the nature of the business. Think again.

Your Cost For a Lapse In Coverage

There are a number of ways you can be “dinged” for allowing your coverage to lapse. First, the obvious “reinstatement” fee. Remember the reports and paperwork from earlier. Well, don’t think the insurers are just going to eat that cost.

You may be able to get away with one short-term lapse on a policy by getting the fee waived, but let it happen twice or more and you can expect to start paying the fee regularly. If you are having trouble making the payment as is, you’ll certainly struggle if your insurer tacks on a $25 fee each time you’re late.

This fee can be the least of your problems if you are a habitual offender. Lapse too many times or for too long of a period, and the insurer may choose not to reinstate your current policy. Now you are in the re-write stage, where you can expect to re-pay the non-refundable policy fee…on top of making the last payment you missed to “catch up.”

What If My Insurer Won’t Reinstate My Current Policy?

So you’ve lapsed one too many times or for an extended period of time…this may result in your insurer refusing to re-issue a new policy for you because your policy was inactive for too long a period of time.

Now you may have to obtain coverage from a different type of insurer, one who will certainly charge you more for you overall policy.

Why? Because the new insurer doesn’t use fees to get you in line…they simply make you pay more from the beginning, as the cost of doing business with people who allow their policy to lapse is “built in” to their pricing structure.

But wait…there’s more! You may lose out on discounts for previous, non-lapsed, coverage. The same policy may cost much more with a previous lapse in coverage than it would for someone with continuous coverage for a certain period of time.

Special Tip for Home Insurance

Make it a habit to keep your home insurance paid up to date, especially if you have a mortgage. Your lender will be notified if your home coverage lapses.

If this occurs, you will enter the world of lender forced property coverage.

Not only does this coverage not protect your home’s contents or your liability (neither are of the slightest concern to your lender), but it can cost as much as three times what coverage would cost from an actual insurer.

Worst Case Scenario?

This depends on the type of policy we’re discussing. None are good, but let’s take a look at some possible outcomes of a lapse in coverage with different policies:

Car Insurance: You cause an accident that “totals you car” and someone else’s. The other driver is taken to the hospital with a severe neck injury – Result? Pull out your check book and get a second and third job to pay for all of the damages out of your own pocket…as well as your bankruptcy lawyer’s fees.

Life Insurance: You miss a payment and the coverage lapses. You die and your family is left with a mountain of bills and none of your much needed income. “Thanks Dad!”

Home Insurance: You were dropped by one insurer and didn’t bother to pick up a new policy…during tornado season.

You see where we are going with this. Have fun repaying the mortgage for the next 30 years, while living in your parents’ basement.

In summary, make it a habit to ensure your insurance payments are up-to-date and never lapse.

No matter what’s standing in the way of making the payment on time, try to imagine how “busy” or difficult your life would be if any of the above examples happened to you.

Read more: Is insurance paid monthly or yearly?

It’s not a subject we love to bring up, but it beats burying your head in the sand.

Accidental Death & Dismemberment coverage, also known as “AD&D,” is a type of life insurance policy (or rider) that will pay out a benefit for death caused by…wait for it…an accident or dismemberment resulting from an accident.

Continue reading before you panic and assume your current life insurance policy DOESN’T pay out benefits if a death occurs as a result of an accident.

That’s certainly not the case. AD&D is usually an additional benefit paid ABOVE what your life insurance policy would already pay.

(How much life insurance do I need?)

Then Why Would I Want It?

There are a couple of reasons why you may consider this coverage. Primarily, it is usually very cheap to purchase.

As discussed above, you may be able to simply add it to your existing policy as an insurance rider…for just a few more bucks per month.

Let’s look at an example using a term life insurance policy:

The younger we are, the less life insurance coverage we typically purchase. Put simply, we statistically have a lot of “life” left.

This is a time to pay down bills, raise children and build our finances for when we get older. We certainly don’t expect to die just from bad health.

However, we are always at risk of “accidental” death. Accidental deaths are one of the top causes of death in the United States. This is the case at any age.

So it could certainly make sense to “pad” our life insurance policies in case the unexpected occurs.

What About Dismemberment?

Perhaps you are comfortable with the amount of life insurance you already have. Great!

But what if you were to become unable to work (produce income) as a result of an accident that didn’t kill you? Rather, you were to lose a limb, finger or your vision as a result of an accident?

This is where dismemberment coverage would kick in. Let’s face it. Most of us require the use of our limbs and eyesight to perform many of the tasks associated with our jobs.

It almost sounds ridiculous to say, but life insurance will not pay out a dime in the event you DON’T die.

Therefore our term life insurance example wouldn’t result in a payout.

Note: The “dismemberment” portion of this type of insurance policy will not offer the same benefit amount as death would afford you (or rather your beneficiary).

So your $100,000 term life policy would not pay out $100,000 in the event you suffered dismemberment.

Be sure to read your benefits statement carefully when entertaining the cost of this policy or rider.

And understand the two coverage types, accidental death and dismemberment, are not always packaged together in one policy.

Read more: Top 10 life insurance companies.

Insurance Q&A: “What is an insurance rider?”

Similar to an insurance endorsement, a rider is a provision added to a policy that adds additional coverage beyond what is offered on the standard coverage form.

But why is this necessary? Why doesn’t the policy simply cover everything? Good questions. The answer is quite simple. Not everybody has the same risk factors.

There may be coverage you need that another doesn’t, or vice versa. Would you rather pay more for insurance coverage you don’t need, or add it only if you need it?

The Basic Policy

The basic policy form, whether auto, home, life or health, contains coverage that is reasonably expected to be necessary by the broadest group of people possible.

For example, a homeowners insurance policy always contains coverage for the home’s contents…you don’t have to ask for it. It’s assumed we all have personal property inside our homes.

However, you will need to purchase a rider for your policy to cover your $25,000 diamond ring – an item we can certainly agree requires special coverage and is not necessarily a “common” item in a U.S. home.

(Is jewelry covered under homeowners insurance?)

Enter the Insurance Rider

The rider you purchase is an additional option to the basic policy. It is not a standalone insurance policy. In fact, you wouldn’t want it to be if you can avoid it.

Why? There are base costs associated with each policy an insurer issues. These include underwriting costs, paperwork, postage and so on. These costs are “built in” to each policy an insurer sells.

Two separate policies equals separate “costs” for you. It’s often easier and more cost effective to add coverage to an existing policy rather than to purchase two.

Examples of Riders

Let’s take a look at one of each to give you a basic idea of what’s available out there. Keep in mind there are probably hundreds (or more) riders available in the insurance marketplace.

Car Insurance – Rental reimbursement and towing coverage are two good examples. The basic auto insurance policy does not include this coverage…you have to add it.

Health Insurance – If you have a pre-existing health condition, a rider excluding the issue may be put in place to allow you to qualify for coverage. Without this rider, the insurer may deny coverage or greatly increase your insurance premium.

Home Insurance – Perhaps you own two homes and want to extend your liability coverage from your primary residence to your second home. This can be accomplished with a rider.

Life Insurance – Accidental death coverage may be added to the basic life insurance policy. Perhaps the benefit is doubled if you die as a result of an accident.

Again, there is no shortage of riders out there. Be sure to clarify exactly what coverage you have on your basic policy before entertaining the rider. You might already be covered adequately and not need to pony up the extra cash.

Also, make sure you understand the rider you’re looking at. It may be more or less restrictive than the existing coverage.

Yes, you read that right. Riders may also exclude coverage as a way to save you money. Be very careful with riders that are restrictive in nature.

Saving a few bucks may sound like a good idea when buying your policy, but you don’t want to hear, “You’re not covered” come claim time.

Like it or not, insurance takes a good chunk out of just about everyone’s budget. But what’s worse is being “overcharged for your insurance.”

Of course, the phrase “overcharged” implies price gouging of some kind, which probably isn’t the case in the largely homogenous insurance realm. Put another way, you may be paying too much for your insurance.

Here are a couple of things to look out for when shopping for insurance to ensure you get the lowest price possible.

Don’t be afraid to ask the following questions when you’ve got an insurance agent or representative on the phone (hopefully, an agent).

Getting That Right Price

1. Why do I need this much coverage? Whether it’s auto or life insurance; if you’re being offered coverage that seems a little heavy, ask the agent to explain why you need that much.

A college student with no assets and no income to speak of may not need the $1,000,000 life insurance policy or the highest auto liability coverage available in state.

For the record, it is recommended that you purchase as much coverage as you can reasonably afford. Budget for insurance prior to your mobile phone!

2. What are these FEES for? Many insurers add policy fees to the price of their actual “coverage” insurance premium. There’s nothing you can do about that. BUT, if you see an “agency” fee anywhere on your invoice…ask about it.

Odds are it’s the agent adding a few bucks to his or her commission. Policy fees are normal for insurance brokers, who don’t receive a commission from the insurer, or if using a “general agency.”

However, you’re everyday run of the mill standard auto and homeowners insurance shouldn’t earn the agent an additional fee. Agency fees are common with commercial insurance as well.

3. Are there any discounts available to me? Most standard market insurers are “discount crazy” nowadays. Make sure to at least ask your agent to double check your policy…especially at renewal, as insurers may have made more discounts available since you originally purchased your policy.

Tip: Discounts are great, but don’t get too carried away. If you are offered a lower premium with no discounts than another insurer who has given you discounts out the whazoo; take the lower premium.

The term “discount” has become has become such a buzzword in insurance advertising that many people actually argue about a lower premium that “doesn’t have enough discounts.”

4. Why is this policy better than the other? Assuming you went to an independent agent and got multiple insurance quotes, ask why your agent chose to present you with the quote you received? Is it coverage, price, ease of use, insurance claims handling or a combination of all of those.

If the agent doesn’t have a particular reason, he or she is just selling on price…which may work just fine for you. However, you may feel overcharged after a poor claims experience than you did when you bought the cheapest insurance available.

5. Insurance agents typically issue a policy, and then don’t think about it ever again unless you call or file a claim. They may not “shop” your policy for you every year. Be sure to call your agent if your policy premium increases at renewal. Your agent might just say, “yep, that looks too high, let’s have some other companies quote this for you.”

HINT: This only works if you have an independent agent who can switch insurers for you. If your agent only represents one insurer (captive agent), State Farm for example, they are not going to be able to shop your premium.

If the premium increases, you simply have to pay more for your insurance if you choose to stay with that company.

Read more: 10 ways to lower your car insurance premium.

Insurance Q&A: “Are insurance quotes free?”

It’s quite common for insurance related advertisements to end with, “Call today for a free quote!”

That magical offer might lead the average insurance consumer to believe getting quotes from another company would cost them some hard earned money.

But, is that really the case? It’s questions like this that keep us here at TheTruthAboutInsurance going.

The Reality

Insurance quotes are free anywhere you go. That’s right, no charge! We aren’t aware of any insurance company or insurance agent out there who is charging for an insurance premium quote. That’d be counterintuitive, don’t you think?

Almost all personal lines insurers in the United States use computer software to provide customers with insurance quotes. It shouldn’t take more than a few minutes to generate some numbers…and if they’re good numbers, the insurance company stands to make a buck. And another buck at renewal time each year…

“Back in the day,” quoting insurance was a laborious, time consuming event. Charging for quotes back then may have at least been reasonable/justifiable. A lot of time may have been “wasted” by an agent who quoted several policies per day and didn’t sell anything…and time is money. Or more accurately, was money.

Hello Internet!

With the advent of the Internet, multiple insurance quotes can now be obtained in less than 5 minutes by simply providing some basic information one time.

Not only that, but policies can be purchased without ever meeting an agent face-to-face or visiting and insurance company’s office to sign the paperwork! We know, it’s amazing…

But the competition is fierce now. Consumers are no longer limited to purchasing a policy from one of the 3-5 local agents in their area.

In fact, if you live in California, you can buy a policy from an agent in New York (if the NY agent is licensed in CA) if that’s the best deal around!

(Do insurance quotes affect credit score?)

To summarize, any insurer or agent who would charge you for this readily available, free service would likely be asking to go out of business. If someone tries to charge you for an insurance quote, RUN! Or simply hang up the phone and call someone else.

This is likely the agent who will also tack on a broker fee to your policy…in addition to the commission they earn for issuing the policy to begin with.

As always, it is recommended that you shop for insurance both online and offline. This means gathering insurance quotes from websites like ours and elsewhere.

And also speaking to one or two independent insurance agents, who can shop your rate and provide you with multiple insurance quotes all at once, all for free!

Note that a captive insurance agent can only provide you with quotes from the one company they represent, which certainly doesn’t count as shopping around, at least not to us.

Read more: Are online insurance quotes accurate?

Insurance Q&A: “How do life insurance companies test for tobacco use?”

Life insurance is designed to pay out a death benefit in the event you, ahem, die (how does life insurance work?).

Smoking significantly increases your chances of an early death.

Therefore, insurers charge higher insurance premiums for those who smoke (or use any tobacco products).

Wouldn’t the world be a wonderful place if all tobacco users recognized that fact and simply admitted their tobacco use and paid the higher premium?

Unfortunately, this isn’t always the case and a game of cat and mouse between the insurance company and insurance applicant typically ensues.

But insurance companies are determined to identify tobacco users and charge premiums accordingly. So, how do they do it?

The Application

First, they simply ask and hope you’re honest about it. As an applicant for life insurance (or health insurance), you’ll be asked about tobacco on several occasions.

Any answer other than “I have never used tobacco in any form,” and you can expect the questions to keep coming.

How much you used, how long you’ve used tobacco, what type of tobacco you used, when was the last time you used tobacco, have you completed a tobacco cessation program, if so when, and have you used tobacco since…and on and on and on.

(How much does life insurance cost?)

Once you answer these questions, you can expect to answer them a few more times throughout the application process as the insurer looks to determine if your answers conflict at any point. This will help them determine how honest you’re being with them.

At that point, even if you quit a decade ago, you may feel like you need a cigarette as a result of the interrogation! (We don’t recommend it…)

The Medical Exam(s)

The life insurance company is going to operate on the “trust, but verify” system. This means no matter what you said during the application process, you’re going to have to submit a urine and/or blood sample to verify your use of tobacco or lack thereof.

Specifically, they are looking for the presence of “cotinine” in your system. Nicotine is broken down into cotinine in the human body over time. Cotinine is present in your system for a longer period of time than nicotine, so the insurance company has a better chance of discovering this substance when testing your “fluid” sample.

(What do insurance companies test for life insurance?)

Bottom Line

Be honest. The insurance company will likely find out if you’re not telling the truth.

They will likely still issue you a life insurance policy if the presence of tobacco is discovered in your system.

You’ll just be charged the “smokers” premium, which will certainly be higher than the quote you saw on TV or the one you received before you admitted to the tobacco use (or were caught red-handed).

To ensure you get the best deal on your life insurance, tobacco or no tobacco, take a little extra time to compare insurance quotes online and speak with an independent insurance agent or two.

We wouldn’t be surprised if there’s a smoker out there paying less than a non-smoker for their life insurance policy simply because they look the time to shop around.

See also: Top 10 life insurance companies in the United States.

Insurance Q&A: “What do insurance companies test for life insurance?”

What don’t they test for? That’s probably the question you’ll ask after you apply for coverage.

Life insurance companies are very thorough when evaluating an applicant for coverage, as the benefit paid out in the event of a claim can be several hundred thousand dollars or more.

That said, there are several factors that determine how much testing is required to qualify for coverage.

How You Purchase Your Coverage

Group term life insurance purchased through an employer sponsored program may require little more than the completion of a questionnaire…no physical testing whatsoever.

On the other hand, if you’re shopping in the private market, you can expect questionnaires and phone interviews in addition to physical exams.

Death Benefit Amount

Guaranteed issue life insurance policies typically have much lower death benefits, and require almost no information to qualify. When you start getting into the $100,000 or $250,000 and up benefit range, you can expect more physical testing.

A paramedical exam may be required. This is where an individual comes to your home or place of work and collects blood and urine samples for evaluation at a testing facility.

Applicant’s Age

Generally, the younger the applicant, the less information may be necessary to issue a life insurance policy. The thinking is; younger people are statistically much less risky to insure…especially when dealing with term life insurance versus whole life insurance coverage.

(Top life insurance companies)

If you’re above 35 and want to purchase a higher-end benefit policy, you may have to visit a medical facility and subject yourself to a battery of tests, including a stress test, used to evaluate your overall health and heart condition.

What Exactly Are Insurers Looking For?

Life insurance is relatively simple in nature. The insurer uses historical data to try to determine how statistically likely it is that they will have to pay a claim.

The more likely you are to die during a particular term (if term life) or how many years you’ll be able to pay an insurance premium (if whole life) determines how much they charge for coverage.

(Term vs. whole life insurance)

Naturally, anything in your profile that makes the odds higher, the more you’ll pay. So, what are those “red flags?”

Existing Disease

You can expect to be tested for HIV, hepatitis, diabetes, kidney or liver disease and any other host of immune system disorders.

Medications

You will certainly be asked about any medications you are or have been taking. Any medication present in your system is a certain red flag that you may have not disclosed a condition you may have.

The blood and/or urine tests will reveal the presence of these substances, so you should be sure to disclose everything upfront.

Illegal Drugs

Illegal drugs can also be detected by blood and or urine samples. As we all know, ingesting these drugs can certainly increase your risk of premature death, so insurers will test for them.

Many of these types of drugs can be detected for weeks to months after ingestion, so again, be sure to be honest on your application.

Tobacco

This is a biggie, as many people try to get away with not disclosing tobacco use in order to qualify for a lower premium. Specifically, Cotinine is what they are looking for. This is the substance that nicotine turns into after it’s in the human body.

We’ll spare you the speech on tobacco use. Just know that the insurance company will likely be able to determine you’re a regular tobacco user.

Most insurers will still issue a policy for you if it’s determined you use tobacco but “forgot” to disclose it on the application. Just expect to see a higher premium than what you were quoted as a non-tobacco user.

How Do I Get the Best Premium No Matter What?

Shop for insurance quotes online and/or speak with an independent insurance agent who can shop your profile with several insurance companies at once.

There are a lot of insurers gunning for your premium dollars. Make sure you’re not paying too much for coverage…no matter what your medical history.

Read more: How long does it take to receive life insurance benefits?