You may think that getting your life insurance application declined is the end of the line. You might think, Well, that’s it, time to pack up and go home.
What you probably don’t know is that you have options. Just because one life insurance company declined your application doesn’t mean they all will, and there are other life insurance products that you can consider, too.
First, talk to your life insurance agent or broker. They’ll probably contact you first – when informing customers that they’ve been declined, life insurance companies tell the broker first and then send the shopper a letter directly. The insurer will usually say why your application was declined. Your broker can work with you to analyze the decision and strategize on what to do next.
Most applications are declined due to medical issues. Each life insurance company sees medical issues (and other risk factors, such as extreme sports) differently. Company A may decline you because you have diabetes, while Company B may accept you. This type of knowledge isn’t widely known outside of insurance circles, but your broker will know which company is best for someone with your risk factors, and will know where to go next should your first choice not pan out.
Luckily, when you apply to another life insurance company, you can reuse the medical exam from your first application. That should shave a few weeks off of your application timeline.
If you are declined again and your broker can’t help you get a term life insurance policy, consider alternative life insurance products.
The first alternative you should take advantage of (if you haven’t already) is an employer-offered group plan, if there’s one available to you. Employer-offered life insurance is typically guaranteed issue, which means you can’t be denied coverage due to medical issues (except in very special circumstances). The cons? Coverage amounts are typically very small, and you lose your coverage if you leave your job.
The second alternative you should consider is simplified issue life insurance. Instead of taking a medical exam, you only have to answer a few broad questions on a health questionnaire.
Don’t get your hopes up about simplified issue, however. When insurers look over a simplified issue life insurance application, they can see your medical exam results from your term life insurance policy. How? It’s all on file at the Medical Information Bureau.
For people in poor health who haven’t recently tried to buy life insurance, simplified issue life insurance can be a great option. But if you’ve already applied for term, you lose one of its major benefits.
Like employer-offered life insurance, simplified issue life insurance typically has lower coverage amounts. It also costs more than term life insurance.
You can read more about the pros and cons of simplified issue life insurance here.
If there are no other life insurance products available to you, take a look at guaranteed issue life insurance. It’s guaranteed issue because you’re pretty much guaranteed to get it if you apply (there very few situations where you may be declined). Rates are entirely based on your age, sex, and location. However, guaranteed issue is much more expensive than simplified life insurance or term life insurance, and coverage amounts are even lower.
You can read more about the pros and cons of guaranteed issue life insurance here.
While these two types of life insurance can act as a backup plan if you can’t get term life insurance, there’s a really good chance that you’ll find a term life insurance policy that fits your needs and risk factors. Always work with an independent agent or broker to find a term life insurance policy before looking at alternative life insurance products.
Most people will be able to find a term life insurance policy that works for them. If your life insurance application is declined, the most important thing you need to know is don’t give up. Just because your first life insurance application is declined doesn’t mean your next one is going to be.
Image: Joshua Earle