Declined for Life Insurance | Here’s what to do

Mehul Gandhi, CFP®, CLU®

CERTIFIEDFINANCIALPLANNER®

Desjardins Financial Security Independent Network

www.mehulgandhi.comІ [email protected]

Did you know that according to the Canadian Life and Health Insurance Association four percent of life insurance applicants are denied every year in Canada (see source)? As small as that number may be, it can be a frustrating and worrying experience for many and one that can cause them to doubt whether they should continue to look for other options. In this article, I am going to outline why you might have been declined, the steps you can take to overcome it, and how I can help you turn the “no” into a yes. 

WHY WOULD SOMEONE BE DECLINED? 

In most cases, people are declined for health reasons. That includes things like their personal medical history and their family medical history. 

Outside of their medical history, their life style maybe described as “risky”. Risky would be defined as things such as: 

·     Previous drug use

·     Previous criminal charges

·     Unsafe driving records 

·     High risk occupation 

·     High risk hobbies (sky diving, parachuting, scuba diving, etc.) 

They can all lead to a decline or exclusion where the policy won’t protect you from a particular risk. 

WHAT SHOULD YOU DO IF YOU ARE DECLINED LIFE INSURANCE? 

First, the most important thing is not to panic. 

Second, reach out to your agent to request the details of why you have been declined. If it is for medical reasons, request to have the information sent to your family doctor. Only a physician can go over any medical reasons that lead to your decline. Your agent cannot. 

If it was a decline due to another matter, for example, an unsafe driving record, the insurance agent or insurance company will communicate that to you. 

However, if you have been declined for a medical reason, for example, high cholesterol levels or blood sugar levels that are outside a normal range, then the insurance company might ask that you work to get those stabilized over the course of a year or longer and then invite you to reapply. Insurance companies do want to provide you with coverage, but they must make sure that the risk they are taking on is reasonable to the sustainability of their business. 

If your risk for decline is something that can't be treated or managed, or if you simply don't want to wait the time it would take to get your medical history under control, there are certain products or companies on the market that are willing to take on more risk than the standard carriers for the standard products. 

Keep in mind though, that often with these companies you might pay a little bit more in premium or you might be limited in your coverage. That being said, these products have come a long way in the last 10 years and may be able to offer adequate coverage to some clients that have been declined with a standard carrier.

HOW DO YOU AVOID BEING DECLINED IN THE FIRST PLACE? 

In my opinion avoiding a decline is usually in the hands of the insurance agent. An experienced agent will know to ask the right questions and dig a little bit deeper to get a clear understanding of the client's overall risk profile during the application process and they'll gather all this information and try to paint a really clear picture to the insurance underwriter.

Now, certain circumstances, the agent might decide to prepare a cover letter. This cover letter can be the difference maker in non-straight forward client cases. It allows the agent to really describe the client or the applicant in a very detailed manner and really address some of the risks that might be a factor when the underwriter looks at the application. The more information the underwriter has the swifter he or she can come to a decision.

For example, when applying for disability insurance, if the applicant has sustained injury due to a car accident but it hasn't inhibited the client from working and they work in a physically demanding job, then that should be noted down and relayed to the underwriter instead of just stating that the applicant is injured. This could make a big difference to an underwriter and the insurance application might not allow for this information to be captured. The only way they would know is if the agent opted to take the time to write a cover letter to the underwriter to explain all of the details. 

Another way to avoid a decline again falls on the agent. If an agent feels that the client might need to clarify some information or get all of the facts, it is best that this is done prior to the application. This is especially important when it comes to family history. The application should include the most thorough and accurate information possible at the time of application.  In some circumstances, the agent might even ask the client to get a medical check-up or clarification on diagnosis so as to provide the best information possible to the underwriter.  Some insurance companies allow for a medical pre-assessment or trial application if the agent requests it. It is more work for the agent but can save the client some of the heartache and frustration of a decline.

IF I HAVE BEEN DECLINED PREVIOUSLY WILL IT AFFECT MY NEXT APPLICATION? 

Yes, unfortunately it will. Every decision made about an application for insurance (life, critical illness, disability) is stored in the Medical Information Bureau. This is a centralized database that all insurance carriers have access to in Canada and can verify when they receive an application. 

A declined application will automatically raise a few red flags to the underwriter before they look too deeply into your application. How do you avoid this? Simply put, working with a qualified and dedicated agent can help. An experienced agent will pick up on any potential concerns from an underwriting point of view right away and halt the application process before it goes all the way through. This can avoid a definitive declined status and allow for re-application and a re-evaluation of what needs to be done before applying.

IF A GOOD AGENT MAKES ALL THE DIFFERENCE, WHAT SHOULD I LOOK FOR IN ONE? 

This is speaking from my own opinion, but you want someone with experience, a long-standing and solid history in the industry and someone who is committed to working with you. 

For example, I've been in the insurance industry for almost 12 years now and I've seen a lot of different cases. I have had the opportunity to help a lot of insurance applicants that were challenging to insure and that have been declined previously and needed to find a solution. I have even helped other agents with getting approvals for clients that were seemingly difficult to insure. 

An agent should always be willing to: 

·     Write a cover letter to paint a detailed picture of the client to the underwriter

·     Apply to several different companies at the same time to make sure you are getting the most favourable conditions and terms

·     Dig deep and ask for details about anything that might raise concerns in an underwriter’s mind in order to paint an accurate picture of the applicant for the underwriter

·     Take the time to answer the applicant’s questions and address concerns before and after the application 

·     Keep in regular contact with the applicant throughout the entire underwriting process

Every time you do get a decline it's a little bit disheartening and your agents’ goal should be to avoid it when possible. There are a number of solutions and options available to those who have been declined, and I encourage you to seek out an agent who is truly dedicated and has your best interest in mind. In many cases, I have learned that the “no” is simply an answer given when more information is needed on an application—your agent should always be willing to do that for you! If you have any questions, or have been declined for life insurance yourself, I encourage you to reach out to me. I would love to work with you to see if we can turn that “no” into a “yes”. 

The information provided in this article is for information purposes only. This article should not be construed as insurance or financial advice, or as an offer or solicitation to buy any products or services mentioned herein. No one should act upon the examples/information without a thorough examination of their specific situation with the appropriate professional advisors.