To figure out how much you’ll pay for life insurance coverage, insurers take a holistic look at your personal history and medical background. This information is used to calculate your risk of dying during your policy’s term, which determines the rates you’ll pay.
But laws and regulations protect your data from being readily and publicly available, so in order for life insurance companies to access your complete medical history, you’ll need to sign a HIPAA waiver. Without disclosing your medical background to insurers, you won’t be able to get life insurance coverage.
By signing a HIPAA waiver, third parties that are not direct associates or partners of your insurance company won’t have access to your personal history. By law, your personal information can only be used to determine your life insurance rates and cannot be used for any other purpose.
Learn more about the life insurance medical exam
Life insurance terms you should know
Beneficiaries: The people you name on your life insurance policy to receive the lump sum of money — also known as the death benefit — when you die.
Cash value: The portion of a permanent life insurance policy’s monetary value that grows tax-deferred over the life of the policy.
Death benefit: The amount of money the life insurance company will pay your beneficiaries when you die.
Face amount: The dollar amount, or death benefit, your beneficiaries receive if you die while your life insurance policy is active.
Insured: The person who is covered by the insurance policy.
Policy: The legal document that includes the terms and conditions of your life insurance contract.
Policyholder: The person who owns an insurance policy. Usually, this is the same person as the insured.
Permanent life insurance: A type of life insurance that lasts for the rest of your life and usually includes a cash value account.
Premium: The amount you pay your insurance company to keep your coverage active. Premiums are typically paid monthly or annually.
Riders: Add-ons to a life insurance policy that provide more robust coverage, sometimes for an extra cost.
Term life insurance: A life insurance policy that lasts for a set number of years before it expires. If you die before the term is up, your beneficiaries receive a death benefit.
Underwriting: The process where an insurance company evaluates the risk of insuring you and determines your final rate.
What is HIPAA?
HIPAA is short for the Health Insurance Portability and Accountability Act and was signed into federal law in 1996. It protects each individual’s privacy and ensures that your information isn’t disclosed without your consent. When you sign a HIPAA form and consent to someone accessing your personal information, HIPAA requires that they still keep your information confidential.
When you sign a HIPAA waiver, life insurance companies must follow HIPAA laws and cannot share your information.
How HIPAA is used by life insurance companies
When you’re authorizing the release of your records to a life insurance company, you’re allowing them to access your previous records, including your medical history. They need this information to determine how much you’ll pay in policy premiums. Your health information cannot be used for any other purpose aside from determining your life insurance rates.
Life insurance companies do this because of the amount of money they pay out when a policyholder dies — even small policies are in the $100,000 range. While a background check may feel invasive, it supplies companies with the information they need to gauge the risk of insuring you.
Due to HIPAA compliance, life insurance companies cannot sell your information and your personal history won’t be readily available to anyone other than the insurer. It can only be disclosed to another life insurance company if you’re applying for a new policy and a red flag pops up, such as multiple policy denials. However, this is generally very rare.
HIPAA forms are common across the insurance industry, and disclosing your personal history is the only way to get life insurance coverage.
What information life insurance companies access
After signing a HIPAA waiver, life insurers can ask your providers for the following information:
Health and medical history
Financial background
Driving records
Criminal records
Again, this information can only be used to determine your eligibility for a policy and how much you’ll pay in policy premiums. HIPAA waivers are only eligible for two years, so if you postpone your life insurance application, you may have to sign another waiver if you resume your application after 24 months.
Signing a HIPAA waiver doesn’t mean that life insurance companies have free rein to do whatever they want with your personal data.
Because of HIPAA compliance, life insurance companies can only use your information to decide your life insurance premiums.
Your information cannot be sold or shared with third parties. However, you won’t be able to get life insurance coverage without signing a HIPAA waiver.
