Reasons for Life Insurance Denial
Why is Life Insurance Declined?
A life insurance application is a contract request with a large financial institution, asking them to assume the financial risk that the applicants death represents. The insurer uses the information gathered on the applicant to compute a score that reflects how risky the client is to cover. If the client scores below that insurer’s threshold with one, or a combination of risks, the company will refuse to extend that applicant coverage. The risk score is tallied based on the below categories:
Application Questions
Any application that offers immediate coverage will also require the applicants to self-report their own history. These questions will cover health diagnosis and medical events, activities, financial and criminal history. The client is expected to honestly divulge to the best of their knowledge all information that pertains to any “yes” question. These questions often only ask about specific time periods and diagnosis, which many applicants commonly confuse and answer incorrectly. If a question is answered “yes” in confusion, the company has no way of knowing this mistake and can use that answer towards lowering the risk score or issuing a decline. On the other hand, if a question was omitted or deliberately answered “no” to avoid decline, the insurer can refuse to pay out a death claim even after the policy has been issued.
Medical History Check
The most common reasons we see application declines are due to history of treatment for chronic or critical diseases. Once a application has been submitted the insurer immediately runs a Medical Information Bureau report to cultivate a list of active and inactive prescriptions that a applicant has been given in the past several years. Over 50% of Marylanders suffer from sort of chronic disease, or are on paper receiving treatment for one. To the insurer, there is no distinction between someone prescribed medication and not taking it versus one who is. The negative affect on the application outcome is the same. Recently occurred or ongoing diseases like Cancer, Heart Disease, Kidney Disease, Liver Disease, COPD, Multiple Sclerosis and Lou Gherig’s Disease are all automatic declines for most policies. MIB reports also show recent reporting of height and weight, mental illness and nicotine usage. A combination of any unfavorable risk factor with another can also lead to a decline. The most popular reasons we see negative impacts on application are due to mental illnesses. Variations of depression, anxiety, suicidal ideation, and Bi-polar disorder can all be severe enough to warrant a decline. Even mild symptoms of these types of illnesses are problematic because they often come diagnosed in pairs, such as depression and anxiety.
Activities
The risk calculation doesn’t stop at health, it also accounts for occupational hazards and risky lifestyle. Certain jobs can create a inherent danger for a company to cover as the likelihood of death is higher. Think rodeo clown, race car driver, coal miner, and certain military occupations. Hobbies like scuba diving, bicycle racing, skiing, and horseback riding are also viewed in the same manner. Most of these hobbies and occupations are not worthy of a decline on their own, but combined with any number of health factors an applicants risk score may be uninsurable. A criminal history search is often conducted in conjunction with a MIB check; What the insurer is looking for here are the odds that such a crime could impact the applicants health if re-offended. Felonies of course represent higher risks than misdemeanors, but “white collar” felonies are normally more comfortable for an insurer than violent or drug related crime. The most common criminal declines are due to recently occurred DUI/DWI’s. It is not just the potential for harm during the actual act of the offense that concerns insurers, but also the likelihood that the crime will result in a prison sentence. Prison is of course inherently a dangerous place to be, and so those charged and are awaiting trial, on parole or probation are all disqualified for being covered.
Guaranteed Acceptance Life Insurance
If a applicant has experienced a rejection or anticipates one based on their risk profile, there are life insurance plans that automatically issue without underwriting. These are known as Guaranteed Acceptance plans, and they come with some caveats. These plans are reserved for older clientele, from ages 45-85 and is a form of final expense life insurance. The contract is automatically issued because the insurer does not actually pay out a death benefit in the first 2-3 premium paying years. In the case of death in that time period, the company only returns the collection of premiums paid up to that point, known as a graded death benefit. These plans can be significantly more expensive than fully underwritten policies, but if the client has no other options represents a way to obtain coverage in the near future.
The best way to navigate the complexities of the application and underwriting processes is of course to use a trusted broker or advisor!