Know the Underwriting Questions Before You Apply for Key Person Insurance

Underwriting questions for key person insurance ask about the health and habits of the person being insured. The insurer is insuring a life, so its application focuses on that individual, not on the company’s finances. This page explains the main question groups you’re likely to see, why accurate answers matter, and how to prepare.

Why Insurers Ask Health Questions on a Key Person Policy

Insurers ask health and lifestyle questions because they insure a person’s life. Key person insurance is life coverage a business buys on an important owner, officer, or employee. The company is usually the owner and beneficiary of the policy.

The insurable interest rule matters here. Under Fla. Stat. § 627.404, a business may insure a key employee or key person only if that person consents in writing before the insurance is bought. The business also may not retaliate against a key person who refuses consent.

The exact questions come from each insurer’s own application form. Wording varies by insurer, so the form in front of you controls. This page covers three groups: medical history, lifestyle and habits, and business details. It ends with accuracy and next steps.

Medical History Questions on the Application

Medical questions usually cover current conditions, past diagnoses, hospital stays, surgeries, and ongoing treatment. Many forms also ask about prescribed medications and recent doctor visits or tests. The wording differs from one form to the next, so read each question as written.

Answers should match the medical records. A medication change or a recent test can be easy to forget. Write down dates and names before you fill out the form.

A “yes” answer often leads to more steps. The insurer may ask follow-up questions, request records from a doctor, or rate the application differently. The result depends on the insurer’s underwriting rules and the facts in the file.

Lifestyle, Habits, and Driving Questions

Lifestyle questions commonly ask about tobacco and nicotine use, including recent and past use. Many forms also ask about alcohol and drug use and the applicant’s driving record. Some forms ask about hazardous hobbies, aviation, or foreign travel.

Each insurer defines terms like “tobacco” and “recent” in its own form. Check those definitions before you answer. Answer from your actual history, not from what you think the insurer wants to hear.

Applications may also ask about family medical history. If you don’t know a detail, say so on the form. A noted gap is better than a guess.

Business, Ownership, and Coverage-Amount Questions

Business questions cover the company, the insured person’s role and ownership, and the reason the coverage is requested. Key person insurance compensates a business for financial losses caused by the death or disability of a key employee, according to the Insurance Information Institute’s key employee coverage guide.

The requested coverage amount is often tied to the person’s documented financial role in the business. The file may ask how that amount was determined. Keep a short written explanation of the calculation.

Business details should match the company’s records. Formation documents and ownership schedules are the usual references. If the policy relates to a buy-sell arrangement, the buy-sell agreement insurance page explains how the two fit together.

Why Accurate Answers Matter and What Issue May Depend On

Every answer on a life insurance application should be complete and accurate. The application becomes part of the record the insurer relies on. Errors can cause problems later, even years after the policy starts.

Florida law limits one kind of later challenge. Under Fla. Stat. § 627.455, a life policy must be incontestable after it has been in force during the insured’s lifetime for 2 years from its date of issue. Fla. Stat. § 627.455 reads: “Every insurance contract shall provide that the policy shall be incontestable after it has been in force during the lifetime of the insured for a period of 2 years from its date of issue except for nonpayment of premiums and except, at the option of the insurer, as to provisions relative to benefits in event of disability and as to provisions which grant additional insurance specifically against death by accident or accidental means.” Under Fla. Stat. § 627.455, every insurance contract must provide that the policy becomes incontestable after it has been in force during the insured’s lifetime for 2 years from its date of issue, with exceptions that include nonpayment of premiums. Fla. Stat. § 627.455 reads: “Every insurance contract shall provide that the policy shall be incontestable after it has been in force during the lifetime of the insured for a period of 2 years from its date of issue except for nonpayment of premiums and except, at the option of the insurer, as to provisions relative to benefits in event of disability and as to provisions which grant additional insurance specifically against death by accident or accidental means.”

Age errors follow a separate rule. Under Fla. Stat. § 627.456, if the age or sex of the insured, or of any other individual considered in determining the premium or benefit, was misstated, the benefit is what the premium would have bought at the correct age or sex, calculated at the insurer’s rate at date of issue.

Issue may depend on insurability. That means the insurer decides after underwriting whether to issue coverage and on what terms. The business’s need for coverage does not decide that alone. Fully underwritten coverage asks health questions, and the answers can affect the decision.

Preparing for a Coverage Review with NR CPAs

A common situation: a co-owner or key employee has a recent diagnosis, a procedure, or a medication change. That person isn’t sure what to report, and the business wants the application done correctly.

Gather these items before you apply:

• A current medication list with dosages and start dates
• Dates and short summaries of recent diagnoses, tests, or procedures
• The company’s ownership schedule
• A written description of the insured person’s role
• Formation documents for the business

Once you have these, contact NR CPAs & Business Advisors at our contact page to request a coverage review. A coverage review is our term for the first meeting. We’ll talk through the application questions for your situation and the business side of the coverage.

Insurance is offered through Nischay Rawal, a licensed insurance agent, separately from the firm’s accounting practice. Any fee for the coverage review is disclosed in writing before any engagement begins.

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