Have you applied for life insurance, but it has been denied due to some reason? Not to worry, the good news is that you will have better chances of applying to other companies as underwriting regulations vary among different insurers.
Key Points to Note:
1. An application rejection from an insurer does not mean rejection from all, as each company has its own rule book to provide life insurances.
2. Alternatives to traditional life insurance coverages are available to consider.
3. The best way to proceed after a declined insurance application is by consulting a licensed independent broker.
Rejection is hard to digest. Whether it is a declined job offer, rejection from peer groups, or declined life insurance, it is not easy to face them and move-on positively. If not the first two, this article aims to help you in taking the right steps after facing a declined insurance application.
Evaluating the eligibility for life insurance coverage and setting a premium amount involves a thorough process, which life insurance companies call ‘underwriting.’ There are varying guidelines set by each company regarding eligibility. Therefore, you might strike luck in having your application accepted in one or the other insurance companies.
Reasons that might have played a role in the rejection of your application could be prior health complications that might have come up during the underwriting process. Others could have been recorded when paramedical exams were undertaken and medical records checked. The disadvantage of having prior medical conditions is that you have to pay a higher price for the same policy with a higher premium, lower death benefits, or choose a guaranteed-issue policy.
Listed below are the reasons and steps to take if you have been denied life insurance. It is important to remember that other options are always available, despite the initial rejection.
Reasons to be Denied Life Insurance
The underwriting process involves taking statements about various factors of your life, including your hobbies, health, and medical history. The life insurance companies would want to get a complete picture of your health or other risks you pose before setting a premium amount. It is important to be honest about this history, even if it involves poor habits, risky lifestyle choices, or medical history like smoking, skydiving, or cancer, respectively.
If they find out that you withheld any information, it might lead to them declining your application completely or drastically increasing the premium amount.
However, each life insurance company assesses risk factors differently as they are not created equally. One company might decline your application due to a health issue you have, but another company might accept it. Consulting an agent could provide you with some clarity about any questions you might have about your eligibility due to the risks you exhibit.
They would provide the options you could consider by comparing policies and quotes without any bias. The consultation would help you make the right decision about picking the best company and policy if your first choice doesn’t work out.
Here are some common risk factors that are used to determine your insurability by life insurance companies.
Age plays a huge role in the acceptance and rejection of an insurance application, along with the determination of the premium amount. As your age increases, it becomes more expensive and difficult to get insured. Some life-insurance benefits might even become off-limits after you cross a certain age. There are options available, but they might not tick all the boxes when it comes to your coverage needs.
One of the things that motivate people to buy life insurance is the presence of debts and financial reliance. However, as older adults tend to have lesser financial obligations, their need for life insurance is likely to go down too. However, there are policies available that provide final expense coverage if you’re a person in your mid-50s and have people depending on your income for a living.
Indications of Chronic Illnesses
One of the main reasons to be denied life insurance is the presence of a chronic illness during the time of application. The chances of acceptance are higher if it can be proven to the insurers that the illness is being treated by submitting the progress reports shown on Attending Physician’s Statements (APS). For example, progress and maintenance must be shown by the regular usage of inhalers and treatment from medical specialists if you suffer from asthma.
There are several stages in the application process where medical concerns are looked into. The first stage is during the application process, where inquiries are made over the phone. In the next stage, the applicant has to undergo a paramedical examination usually sponsored by the insurer, which includes urine tests, blood tests that detect any presiding illnesses or use of illicit drugs. In the final stage, the underwriter would thoroughly check their APS and medical records to ensure there is no risky medical history.
As mentioned before, there are different guidelines for each company, but there are some common health issues that could cause an increase in the premium amount or denied life insurance. These include the use of nicotine or smoking, sleep apnea, presence of high cholesterol, high blood pressure, anxiety or depression, chronic illnesses like heart disease, Parkinson’s disease, HIV/AIDS, cancer and asthma, and people who suffer from obesity and diabetes.
Risky Lifestyle Choices
Having a risky and unhealthy lifestyle does not necessarily mean rejection of life insurance coverage, but the premiums would be significantly higher. You could get coverage if you have the habit of smoking. However, if it is accompanied by medical conditions like lung cancer or emphysema, then there are higher chances that you would be denied life insurance.
It is important to note that upon your death, if the insurance company discovers that you had a risky hobby, poor lifestyle, or a chronic condition that would have resulted in a denied life insurance coverage, then they have the authority to cancel the policy. The enlisted beneficiaries would only get the refund for the premiums paid and not the death benefits.
Steps to Take When Life Insurance Application is Declined
Ø Step 1: Have a Discussion with Your Agent
The first step to take when you are denied life insurance is to approach a life insurance broker or agent. If you already have one, it is likely that they already know about it as life insurance companies inform brokers about declined applications before sending information to the applicants. The agent would explain the reasons why your application might have been declined and would help you analyze the situation and explore the options available.
One plus point is that you wouldn’t have to retake all the medical examinations when you apply to another insurance company as you can submit the reports from your first application, which would save a few dollars and your time.
Ø Step 2: Look into Alternative Life Insurance Policies Available
If a company declares that you fall under the high-risk category to benefit from traditional life insurance, there are alternative forms of insurance available that would help you get insured.
They usually offer low coverage, but they do not have extensive examinations that usually create a barrier to getting insurance. Some of them are listed below.
a) Guaranteed-acceptance Life Insurance
Guaranteed-acceptance or guaranteed-issue life insurance does not have any underwriting taken, including medical examinations or review of medical history and APS. There would only be general questions about your health, and it is equally important to be honest while answering these questions as the consequences are similar.
One of the main disadvantages is that this form of life insurance is highly expensive but provides smaller death benefits as compared to traditional life insurance coverages. The benefits usually fall under $10,000 to $50,000. It is a good product to choose if you are running out of options with other insurance companies.
b) Simplified-issue Life Insurance
Under this life insurance scheme, the underwriter would only look into your medical history and records along with asking a few health-related questions. The process of undergoing medical examinations is completely absent.
The insurer would also pull the records stored in the Medical Information Bureau to check for any history of medical exams and reasons for the denied life insurance applications.
Simplified-issue also has the disadvantage of being expensive as the premium is a lot higher than traditional life insurance policies that are available for the same cost. The coverage is limited to $100,000 and not more.
c) Burial Insurance
Burial insurance, also called final expense life insurance usually covers the costs of funerals and other related services as the policyholders are expected to be having a high fatality risk.
As funerals in the U.S. cost around $8,000 to $10,000, it could take the burden off the family. Although, the premium for this insurance is high.
Ø Step 3: Enquire about Group Life Insurance Policies
Many companies and employers provide group insurance coverage and benefits for their employees, which includes a small amount of remuneration even with existing medical conditions or a risky lifestyle. Therefore, even if all other applications have been denied, you would still be entitled to this coverage.
Group insurance coverage has the benefit of having a low premium, as it is provided by the employer to a large group of employees. But at the same time, the coverage amount would be small, along with the risk of losing your coverage if you leave or lose the job.
In conclusion, a declined life insurance application does not mean that you would not get insurance anywhere. Rather, there are good chances that your application would be accepted by another insurer with different undertaking standards regarding health conditions, age, and lifestyle practices.
So, there is no need to be anxious. It would help to firstly talk to a broker or an agent and understand why your application has been denied and then follow-up with making some changes in your lifestyle, increasing the chances of approval.
If you have any doubts or questions regarding your rejection, consult your agent and reapply for insurance in the company after a period of time, providing a chance for the insurer to re-evaluate your application. There have been cases where the applications have been approved the second time.
If your application was completely denied due to prevailing medical conditions or increasing age, consider opting for alternative coverages like guaranteed-acceptance life insurance, simplified-issue life insurance, or burial insurance, which could help you get coverage, although at a high cost.
If you are looking for more economical options, you could discuss with your employers about getting benefits from a group life insurance coverage with low premium costs.
It is best advised to consult independent agents or brokers and compare rates to explore all the options available and find the best life insurance policies, at the best rates, to suit your needs.