Writing a Successful Cover Letter

 A cover letter often proves instrumental in understanding the overall dynamics of a case. They are the advisor’s opportunity to present the client to insurance companies in the best possible light. No one else involved in the process understands the client better than the advisor and, because of this, a cover letter is invaluable in securing a viable offer for the client. The extra detail provided in a cover letter cannot typically be known or developed by the currier during the underwriting process. Carrier underwriters tell us all the time how much they appreciate cover letters on case submission, so you can be assured that they are read and influence the outcome of a case.

An underwriter’s review of a case file includes an assessment from both a medical and financial standpoint. Consequently, it’s usually beneficial to submit a cover letter that helps the underwriter understand both the insured’s medical “story” as well as all the insured’s important and relevant financial information. In addition to describing the financial information that supports the reason for the insurance, your letter should also include supporting financial documentation.

Because of the importance of a well-drafted cover letter, this Counselor’s Corner will provide insight into what is included in a typical well-crafted cover letter. While there are no strict rules in how to write a cover letter the following structure will make it easier for an underwriter to understand your case.

Part I: General Background Information

 You should begin your cover letter with general information about the case. At a minimum, this part of the cover letter should include the following information:

• Who is the insured(s): Perhaps your client is a parent to minor children or a special needs child, or a wealthy business owner or next generation heir. If the insurance is for a business purpose, then it’s helpful to provide the insured’s position in the business i.e., owner, employee, both – and title. If the insured is a business owner indicate percentage ownership interest and whether insurance is being acquired on the other business owners, and if not, why not.

• Reason or Purpose of the insurance: There are many reasons for purchasing insurance. They are often broadly categorized into personal, business, and estate/charitable. Within these broad categories there are a number of reasons for purchasing insurance. For example, within the personal category the typical reasons for purchasing insurance are to pay down debt/mortgage, to provide income for surviving family members, or to pay taxes (estate and income) and final expenses due at a person’s passing. In the business category, the usual reasons for purchasing insurance include funding for a buy-sell, coverage for a key person, or a form of executive benefit.

• Explain the policy structure: The identity of the insured, owner, premium payor, and beneficiary, and, more importantly, their relationship to each other. If the policy structure is different from the typical structure based on the reason for the insurance, you should explain why the structure makes sense. For example, it would be unusual for an insured to be the owner of a policy where the reason for the coverage is for estate tax liquidity, but there may be acceptable reasons for the structure.

• Business form: Where the insurance arrangement involves a business or multiple businesses, it’s helpful to understand the business structure(s). Specifically, what is the business type (S Corporation, LLC, Partnership etc.).

Part II: Financial Information and Supporting Documentation Relevant to the Case

The cover letter must provide the underwriter with sufficient explanation to understand the financial basis for the face amount of insurance coverage. Specifically, the cover letter should include the following information:

• How the amount of coverage requested was determined: The cover letters should provide insight into how the face amount of coverage was established. The face amount of coverage should represent the beneficiary’s expected loss or obligation. Often, the face amount is based on financial needs or estate tax analysis. Perhaps it’s based on the obligation to purchase a business interest. If an independent tax or legal advisor helped in determining the amount, it is helpful to indicate this fact and the name of the advisor. It goes without saying that just because the premium payer can afford the coverage does not mean they will qualify financially for the coverage amount.

• How much insurance is currently in force, its purpose, and whether it will be replaced/surrendered: Of course, the amount of coverage already in-force, (or sold) will reduce the total amount of insurance an insured may qualify. Thus, the cover letter should provide an indication of whether existing coverage will be retained or replaced. Is there a possible replacement or exchange indicate this fact and explain why the replacement is advantageous for the client.

• Source of premium payments: As part of the financial underwriting process, underwriters assess whether the owner can “afford” the coverage. Thus, it’s important to indicate whether someone other than the owner is the source of the premium i.e., parent, business, bank etc. Is there a premium tolerance? If the underwriter understands the goal upfront, they will work with that as their objective.

In addition to the above explanation, documentation must be submitted with the cover letter that supports the explanation for the amount of insurance requested. See the DBS Financial Underwriting Chart for an indication of the type of documentation normally requested by underwriters.

Part III: Medical and Travel Information about the Insured

The life insurance company will examine several factors based on its medical underwriting guidelines. Consider including any information that will help the underwriter form a better understanding of the following factors:

• The insured’s current health and physical condition: When the insured is elderly, it’s especially important to describe social activity in addition to health.

• Medical history: Be sure to provide a full explanation of anything in the insured’s medical history that needs clarification. Share favorable information about what your clients are doing to manage their health history. Your clients’ medical records will identify the potential underwriting risks. However, they typically do not contain many of the favorable aspects your clients may be engaged in. For example, your client may have dramatically altered their lifestyle subsequent to diagnosis of coronary artery disease. This may involve significant changes to diet and exercise that could go unknown without your help.

• Personal habits: Underwriting classification is often impacted by personal habits such as tobacco, drug, or alcohol use. Where an insured has a habit that will impact his/her underwriting classification, you will want to provide detailed information including frequency of use.

• Vocation: Provide activities of the insured’s job if it’s not clear from the title.

• Avocation, hobbies, or foreign travel: If the insured participates in a “dangerous” activity (i.e., hang gliding, scuba diving etc.) you will want to provide detailed information, including frequency. If the insured has foreign travel plans, you will want to indicate where he or she plans to travel and the length of the stay. You may be aware of non-medical risks about your client such as adverse driving history, foreign travel, aviation, or hazardous activities. Your cover letter can help present these types of risks favorably as well. For example, your client might travel to some questionable areas but you may be able to share that in those areas they stay only in 5-star resorts and do not venture outside of them. A potential non-medical risk can many times be viewed more favorably when positive details are provided.

• Other information: Is there a unique situation that warrants an explanation or additional information that would benefit the case? For example, if your client is a 72- year-old who enjoys Sudoku, playing bridge, and jogging, share that information! It shows exercise tolerance, community engagement, and mental acuity – all important to underwriters for mature age applicants. If your client is young, in between jobs, but has an MBA and takes care of an ailing parent, add it to the cover letter. It shows an insurance need and creates a perception of likely future employment, which reassures underwriters.

How DBS Can Help

If you need any guidance with respect to your cover letters, DBS has experienced resources to help. We can analyze all aspects of the medical, financial and case design to provide additional insight to create a compelling cover letter that will best position your case.