Once an insurance company receives your application, the underwriting department will begin the evaluation process – this is known as underwriting the case – to determine whether or not you qualify for insurance and, if so, at what rate classification.
At this point, the company may determine that the applied for coverage cannot be issued due to an applicant’s health or lifestyle risks. If that’s the case, the company is likely to offer the applicant insurance on a modified (i.e., rated) basis.
Meaning, they will have to pay a higher premium in order to get coverage.
In situations like this, life insurance companies employ a medical director, who advises the underwriting department on difficult or borderline applications. The medical director will be an M.D. and may be full-time or part-time.
A borderline application is one that falls in between two rate classes.
If your application is a borderline case, chances are the medical director will have been consulted. In many cases you can negotiate with the company, which may call for furnishing additional information about the condition or conditions that concern the underwriter.
That is why it is important to find out the exact reason why your application was declined or rated. With that information in hand, you should then consult your personal physician.
Always bear in mind that the insurance company is taking on a risk by offering you insurance, so their view of your medical situation will necessarily be more conservative than your doctor’s opinion.
If your physician does not agree with the insurance insurer’s decision, one of two things may be occurring.
First, your physician may not have been fully upfront with you regarding a health condition or you may have developed a new condition since your last visit.
Second is that the insurance company does not know the full details of your health condition. This may be due to an incomplete medical record, which is where your adviser’s role comes in hand.
Your adviser should act as your advocate in case your application is declined or modified, to see if providing additional information will allow the company to make a more favorable offer.
About 50 percent of the time where a case’s initial offer was not favorable was due to poor communication.
Your adviser will find out as much information as possible about why the company declined or modified the offer. Then you can discuss the situation with your own doctor.
After assessing the situation, your adviser may suggest further negotiations with the insurance company in an attempt to get a better offer.
On the other hand, they may suggest shopping around for a life insurance company with more experience in underwriting and issuing policies for cases similar to yours.
Underwriting departments tend to become specialists who develop their own comfort level with certain types of medical condition. The same can be said about life insurance companies.
After many years of working with certain conditions, companies compile reliable statistics that may allow them to make a more favorable offer. Two very important underwriting variables are the company’s risk tolerance for a give medical condition, and how it sets an appropriate rating and premium for that condition.
These factors vary from company-to-company.
Again, underwriting is more art than science, and different companies may view a given condition or lifestyle consideration differently.
Occasionally – perhaps 10 percent to 15 percent of the time – the applicant will be offered a rated policy. Meaning, this applicant does not meet the company’s standard rating criteria and the company must therefore charge a higher premium to cover the risk.
Ratings are assigned based on health history and lifestyle considerations.
Here are some examples of situations that may result in a rated policy:
· Family history of cancer or heart disease
· Multiple moving traffic violations within a certain period of time
· Hazardous avocation (e.g., deep scuba diving, parachute jumping, mountain climbing)
· Height and weight outside the company’s standard criteria
· Tobacco use or any health issue that is not under control or otherwise being dealt with
· History of certain conditions, such as cancer, heart disease, etc.
Essentially, the underwriter is looking for anything that might affect mortality.
Some companies offer an impaired risk program, which provides insurance to those who have health issues that caused them to be declined coverage elsewhere. Typically, it will be a large, respected company offering a full range of life insurance products.
There are even some “impaired risk” products (i.e., for those with significant medical conditions) available with no extra premium over the company’s standard programs. All rated and declined applications should at least be considered for impaired risk underwriting.
Your adviser is a valuable resource in determining options for your specific backgrounds.
Don’t give up hope – there many be life insurance available to you at an affordable cost. The best way to find out is to check around, which your adviser can do.
Declined applications are comparatively rate and are reserved for severe medical conditions, such as cancer (currently under treatment) or advanced heart conditions.
A life insurance policy is a financial asset, just like stocks and bonds. The key to successfully getting through the underwriting process is finding a company that will invest in your life.
By Tony Steuer, CLU, LA, CPFFE
Tony Steuer is an author and advocate for financial preparedness. Tony Steuer, CLU, LA, CPFFE, helps people make sense of the financial world in a way that’s easy for them to understand. His books including, “GET READY!,” “Insurance Made Easy,” and “Questions and Answers on Life Insurance,” have won numerous awards. Tony is the founder of the GET READY! Initiative which includes the GET READY! financial organization system, the GET READY! Financial Preparedness Club, GET READY! Podcast, and the GET READY! Financial Principles, a best practices playbook for the financial services industry. Tony served as long-term member of the California Department of Insurance Curriculum Board. Tony is regularly featured in the media including the New York Times, the Washington Post, Fast Company, and other media. He has also appeared as a guest on television shows, such as ABC’s “Seven on Your Side.” Visit https://tonysteuer.com/ to join the GET READY! Financial Preparedness Club and access free resources.