The 4506T-EZ Form and My Life Insurance Application
Some life insurance companies are now requiring the 4506T-EZ (Short Form Request for Individual Tax Return Transcript) IRS form to be completed as part of the life insurance application. One company for instance, is requiring all applicants over the age of 26 complete the 4506T-EZ IRS form, while another company is requiring that the form be completed for applicants applying for certain face amounts and or if you are over a certain age and face amount. While the implementation of the 4506T-EZ may be a new practice in life insurance underwriting, it is commonly used in other industries to verify income. The lending industry, (i.e., mortgage, auto loans, education) has an extensive history using the 4506T-EZ. The 4506T-EZ form even may be requested when an individual applies for financial aid or by a potential employer verifying a candidate’s background and history.
What is a 4506T-EZ?
The 4506T-EZ form is an IRS document used to obtain previously filed tax returns. It can allow a third party, such as a mortgage or insurance company to retrieve and view the tax payer’s returns that were filed with the IRS. Typically, companies will only look at the past two years that were filed.
Why do they need this?
Since life insurance underwriting is based on risk, insurance companies are trying to limit fraud and or misrepresentation, epically on higher net-worth policies. By taking this extra measure, (4506T-EZ form) they seek to reduce or alleviate many issues of misrepresentation. That being said, life insurance applicants are already now required to fill out the HIPPA release form allowing underwriters to access and review medical records as needed. The 4506T-EZ form is just giving the underwriter the option of viewing your previous tax filing if so needed.
What if I don’t want the life insurance company to request or see a copy of my tax returns?
The good news is that the institution of the 4506T-EZ is still a relativity new practice, and not all life insurance companies have yet adopted it. For larger face amounts and or certain ages, they still may require a Financial Questionnaire or Personal Financial Statement and their requirements, but the 4506T-EZ is not requested. However, it’s likely only a matter of time before this form will be required by most carriers as it is common practice in the lending industry, and insurance companies will want to limit their risk.
Are there any advantages?
Use of the 4506T-EZ form can accelerate the underwriting process and eliminate certain CPA fees. Also, it can catch any misrepresentation early on in the underwriting process.
While the request of the 4506T-EZ is commonplace in other industries and seldom met with resistance, some life insurance applicants simply do not feel comfortable with a third party requesting and viewing their tax records. If you fall into the latter of these two categories, make sure you convey your stance on the 4506T-EZ, so the agent can help you choose the best company for you.
If you have any questions about the 4506T-EZ form or are looking for a company who does not currently require the 4506T-EZ form, please contact me and I can help.