Discrimination: How Life Insurance Companies Get Away With It
You applied for life insurance and were turned down.
Do you feel like you were discriminated against?
You were, and it’s perfectly legal!
With over 700 life insurance companies, it's not only important for you to know the rules of the game of securing a policy, but getting your best value.
This guide provides an overview of what most life insurance companies will consider when you apply for a policy and offers some tips and tricks to help you get the most coverage for the least amount of money.
Here’s what we'll cover in this post:
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Here’s what we'll cover in this post:
Discrimination by Life Insurance Companies
Many people we speak to are under the impression that life insurance is something guaranteed to them by law. This is not the case, but understand the misconception. Though the industry is regulated by your state insurance regulators and Federal government, this isn't Obamacare...the ability to qualify for life insurance is a privilege, not a right or entitlement.
How about some good news....how do I know if I qualify for life insurance?
The good news is that 80% of the people we speak to are insurable.
OK...then what's it going to cost me? Life insurance cost is determined by a number of factors, but for this article, we’ll focus on health underwriting.
Baseline questions include your current age, lifestyle, past and current health, and family medical history. For family history, underwriters will generally want to know if your parents or siblings suffered heart disease, stroke, cancer or diabetes before age 60.
Speaking of family history, there was a recent article in the NY Times about how DNA testing could be used by life insurance underwriters.
Underwriters use actuarial tables to determine risk over time. They aren’t looking at us just today, but their risk of paying the claim over the length of the policy. Term life insurance (you choose your policy price guarantee period of 10-30 years) and lifetime coverage (typically a variation of whole life/universal life) will generally require a free in-home medical exam paid for by the insurance company.
There’s no cost or obligation if you’re turned down or approved and choose not to accept/activate the policy. If you're wary of taking an exam to qualify, be sure to let us know. We have some life insurance options without a medical exam which may work for you.
How about that “no health questions asked” life insurance advertised on TV?
In addition to "No Exam" policies, there are "No Exam/No Health Question" policies. These policies could be your best (or only) option if you only need a smaller amount of life insurance ($30,000 or less) and have been “declined” (not approved) or refuse to answer health questions. They are relatively expensive….the less a life insurance underwriter knows about you, the more you will be charged.
Be aware some of these policies increase in cost every 5 years and end at age 80, including some of New York Life policies pitched by Alex Trebek for AARP.
This article may help you if you just need a burial policy or a quick review of life insurance basics.
If you’re buying life insurance to pay for burial/final expenses, buy one that will always be affordable and you won’t outlive.
Is it important for me to give “full disclosure” over the phone?
An independent life insurance agent will gather information you provide and to enter anonymously into their database of underwriting rules and rates for the various life insurance companies their appointed to sell through. The more companies they have, the more options you'll have, so choose an agency affiliated with at least 20 A-rated insurers. You can then be matched to your best fit.
Remember GIGO...Garbage In, Garbage Out. If you provide inaccurate information, you’ll receive inaccurate quotes which prevent you from making an educated buying decision. Do you family right...full disclosure for best family protection.
Will I Get a Better Deal for Life Insurance by Bundling with my Home and Auto Coverage?
Before I got in the life insurance business, I assumed my home and auto insurance company (Farmers) would give me a “break”, providing a better price and making it easier to qualify. Actually, the reverse is true! Life insurance is regulated.
Your agent can’t give you, his best friend, or a co-worker a break…he would lose his license. Another example: if you qualify as a “preferred risk” with Prudential, a Prudential preferred risk policy will be the exact same cost from any other agent across America.
State Farm, Allstate, Farmers, Progressive…the companies bombarding us with insurance commercials every evening specialize in casualty (home and auto insurance). It’s where the money is, and customers tend to stick with them for years to come. These “home and auto” insurers will generally sell life insurance, but it’s not their bread and butter.
The companies have huge marketing budgets. To remain competitive on the casualty insurance with other big boys, they will charge you more for life insurance than a company which specializes in this area. They will also be harsher on “impaired risk”…major health issues.
Companies specializing in home and auto insurance will often decline diabetics, even when the affliction is well controlled, whereas we get the same clients approved at affordable rates by pairing them with top-rated carrier specializing in this condition. (Diabetes is the number 1 health issue we’re asked for help).
For help finding your most affordable life insurance, check out our 10 most overlooked savings secrets.
Am I Safer with a Big Name Insurance Company?
Not really. Life insurance is a regulated industry and has been that way since the late 1800’s. Since that time there’s never been a situation where a company has gone bankrupt, because it’s a profitable business.
If a company voluntarily leaves the industry (I’ve had it happen to me) your policy is still valid…it’s transferred (actually bought) by another carrier of equal or higher rating. The rule of thumb is to choose a life insurance carrier rated “A” or better by AM Best, the industry standard.
Some companies discriminate more than others! How to Choose a "Good" Insurance Company (for you)
This is where your agent will help you.
To put things in perspective, there are over 2000 companies in the US selling life insurance. Most have a risk scale of 1-12….beginning with a “Preferred Best or Preferred Plus” risk maybe 5% of the population will qualify for.
If you do the math, there are over 20,000 “risk buckets” we can fall in to! Home and Life specialty carriers generally have 4 basic rate classes; Preferred Best, Preferred, Standard Plus, and Standard. If you’re below “standard” or average health, they will often decline your application.
This is not only frustrating, but this “decline” information is kept on record through the MIB…Medical Information Bureau….that is accessible by doctors and insurance companies. You’ll be asked on subsequent life insurance applications if you’ve ever been declined. This can make it tougher to get approved in the future.
This is another reason you want to provide us accurate information about your health, including medications when we’re shopping your rates. The good news is there’s a lot of room to get approved, even with significant health history.
We’ve helped clients secure life insurance after quadruple bypasses, brain aneurisms, cancer….it’s all about begin matched with the correct carrier and that you have recent medical records with follow up as prescribed by your physician.
Life Insurance Table Ratings Explained
In life insurance jargon, a risk below a “Standard risk” (average for your population group) is referred to as a “Table Rating”. Table rates are assessed anywhere from T1-T8.
An easier way to understand their rating system is to look at it numerically, where a 1 out of 12(1/12) is the absolute best someone can qualify, and a 12/12 is the last possible rating classification before being declined coverage all together.
A good agent will be able to help you determine which rate class you may qualify, and even which company is going to have the most favorable underwriting for your particular health profile. If you are being prescribed a certain medication, or have been given a specific diagnosis your agent can lead you to the “right fit” insurance company.
The best way to receive accurate rates is to make sure you are providing complete and accurate information. Your agent is only as good as the information you provide. If you're wondering if something is relevant, ask them.
The agent doesn't determine your rates, the underwriter will. If you hide something, it will likely be discovered and could possibly invalidate your policy, so why bother?
In your initial interview your agent will typically begin with basic underwriting questions including height, weight, blood pressure, and cholesterol. From there the questions may get more personal, and may be confidential in nature in that only your doctor or spouse may be the only ones to know these things about you.
Just like doctors and lawyers have patient client confidentiality agreements, so do professional licensed life agents. We’re only here, so allow us to do our jobs and find the best value for your hard earned money.
Discrimination by Life Insurance Companies Redux: All men are not created equal!
It’s worth a mention that every company underwrites differently than the next. Rate classes and prices can vary from company to company, and sometimes even, underwriter to underwriter at the same company! Just because one company approved your application at preferred, doesn’t necessary mean you’ll get preferred with all other companies.
And the reverse is true….you could be a substandard risk with one company, and “standard”, or even better, with another. Is this a big deal? Absolutely! Each risk class can represent a 10-20% difference is cost. A great example is the variance in “build” charts for height and weight.
I had a recent case where a 5 foot 10 inch 38 year old man weighing 229 lbs was able to qualify for preferred risk rates with one company (Genworth) and was “Standard” with the other companies less liberal for build.
The difference was $10 a month, which doesn’t sound like much, but over 20 years, the savings is $2400. Better to keep that money in your pocket rather than an insurance company. That’s a difference of $120 per year, and $2400 over the course of 20 years. It adds up!
Imagine what the price difference would be for someone in their 60’s or 70’s. The price differences from policy to policy/risk category to risk category is greater with age. We help a lot of clients between 50-70 apply for life insurance. Ask us about the cost differences when we generate quotes….it’s amazing! You’ll learn how easy it is to overpay.
Why do they Need my Medical Records? Won’t they Use them Against Me?
In addition to the in-home paramedical exam, medical records are a big portion of the underwriting equation. The physical exam, paid for by the insurance company, consists of a nurse verifying your height, weight, blood pressure, and a small blood and urine sample. Once you’ve completed the physical exam, you’re on your way to obtaining life insurance.
Not so fast! The application now moves to underwriting which can take an average of 3 to 8 weeks before an approval. During this time the underwriter may decide that it’s necessary to review your medical records in order to verify a specific diagnosis or treatment. They can retrieve medical records at their discretion for any medical reason to assist them in assessing risk over time.
Of course they need your permission to do due to HIPAA privacy laws. And it’s your right if you choose not to sign the HIPAA medical release form, just like it is their right to deny offering you coverage. I had a real tough time finding homeowners insurance because I live near open space considered a fire zone. Didn't mean I couldn't get insurance, I just had to hunt the right company down. Life insurance works much the same way if you have an ailment.
Real Life Example: Life Insurance for Diabetics
I had a recently case where the medical records ended up helping my client. She was diagnosed with type 2 diabetes 4 years prior. It was important for her to obtain the right amount of coverage, at an affordable rate.
During the health interview my client knew her total blood sugar number had been around 100 as she checked it twice a day. However, she did not know her A1C Hemoglobin reading, as her doctor told her it was always within good range. An A1C reading is an average of the blood sugar over the last three months. In life insurance most underwriters will consider an A1C below 7.0 as showing good control over time.
During the physical exam her A1C came back at 5.5, which shows good control. When the underwriter looked into the medical records they were able to confirm that her A1C had been within this same range around 5.5 for over the last three years.
They were able to offer her a policy that was approved 2 rate classes above where I had initially quoted her. The result was a lower cost by nearly $50 a month! As a result, my client chose to increase the coverage amount to provide more protection for her family, and within budget.
My Medical Records are "Wrong?"
Any time you see your doctor, whether it’s for a general check-up or the common cold, most everything is recorded. Chances are everything you tell your doctor will make its way into your medical records. Can there be mistakes? Absolutely!
Twice I’ve had clients declined for cirrhosis. They were shocked…didn’t have a drinking problem, hepatitis, or problem causing this terrible condition. What they did have was a skin condition…psoriasis!
I had another case where a son and father had the same names, and used the same small town doctor. When the dad applied for life insurance, the underwriter received the son’s, who was medically disabled.
The good news is we were able to get this sorted out and our clients approved. The point is, it’s a good idea to occasionally review your medical records with your physician. You never know what they’re scribbling….you may be surprised. On the other hand, don’t expect a doctor to retract things which are correct….they could lose their license.
If you smoked and have really quit, make sure that’s in your records. Life insurance companies won’t just take your word for it; they’ll want to see it in your records. And make sure you don’t have photos with a cigarette on Facebook or other social media; it could come back to haunt you if you died within your two year contestability period!
Don’t be Misled by a Lowball Quote
We hate to see how often clients are misquoted online or by phone. It’s often a result of agents inexperienced with medical underwriting, or lowballing the quote to try to hit their quotas.
It’s your insurance exam lab work and medical records which determine your rate, not your agent’s quote. Many life insurance agents either don’t have the underwriting capability or experience to quote accurately.
As with any financial planner, ask your agent about their underwriting experience, licensing, and number of companies they are licensed to represent.
“Captive agents” only work for one company. This is how my Farmer’s agent operates…he could only quote me for his company and didn’t have the company’s guidelines for my medication. He would have just sent the nurse out, and I would have received a policy reflecting the appropriate cost.
When I got in the life industry I learned the importance of shopping around. As with the case above, I was able to buy more coverage at a lower cost…and with a higher rated company.
One size DOES NOT fit all
One lowball tactic we often see is the “one size fits all approach.” This is where the everyone quoted online or by phone receives the best rate possible for their age; Preferred Plus for everyone! Sounds good, and the price is great! Your likelihood of qualifying for that rate? Usually around 5%.
A quote is just that…a quote.
Your agent has no influence on the price, other than matching you to the company best for your risk factors. That’s why you want to be complete and accurate in your agent interview. If you’re lowballed, the underwriter will typically approve your application at a higher rate than originally quoted.
Had the agent done their due diligence, asking the appropriate underwriting questions, you would have had realistic expectations from more accurate pricing. If you feel your agent is reading a script, not listening to your needs, or not asking questions about your health….beware.
The call center mentality will have an agent wanting you on and off the phone in a hurry. They may be more interested in a quota to get their Sales Manager off their back or looking to win that trip to the Bahamas.
Is there Discrimination by Life Insurance Companies?
The benefit to using an independent agent, like JRC is to ensure you end up with the best fit of a highly rated insurance company best for you and your needs...we'll eliminate those which discriminate against whatever your issue may be.
If you’re looking for honesty, integrity, and full disclosure during the application process and beyond, JRC may be a great fit for you. We won't sugarcoat things or waste your time...we owe you that respect. We want to earn your trust and business, for life.
Co-Founder and Managing Partner
Justin is a co-founder, managing partner, and a licensed life insurance agent at JRC. He began working in the insurance industry after graduating from SDSU in 2004, and he takes pride in helping his clients find the most affordable coverage available. Justin is an avid sports fan that enjoys barbecuing, fishing, golfing, and spending time with family and friends.