Application Definition
The Dictionary of Insurance Terms and Definitions
An application is a document which a life insurance customer submits to the insurance company as a request for a particular life insurance policy.
When you buy life insurance, you cannot simply select the life insurance product you want and then make your purchase because the seller needs to know something about you first. Here's why: with other types of purchase, cars for instance, the seller's cost in the exchange is fixed, regardless of who the buyer is. But with life insurance, the seller's cost varies depending on the buyer's life expectancy.
A vendor has the right not to sell its product or service. If a customer's life expectancy is particularly poor, the life insurance company may refuse to sell him/her the policy that he/she wants. For instance, if an individual applies for a 20-year term life insurance policy but carries a terminal illness, the insurer may be confident that it will lose money. If the company can afford to sell the sought-after policy to the applicant, though, it will extend an offer, which the applicant may accept.
The offer is often for exactly the same rate that the applicant was initially quoted, but not always. After reviewing the applicant's medical information, the insurer may determine that the applicant belongs in a rate class that is higher or lower than the one he/she represented him/herself to be (when you request life insurance quotes, you indicate what you think your own rate class should be—Best, Preferred Plus, Preferred, Standard). The price offered by the insurer corresponds to the rate class in which the insurer believes the applicant to belong.
