This article first appeared on fundMyLife, the platform that connects financial planning questions to the right advisers.
Underwriting is the process whereby the insurer evaluates a proposed client’s risks before deciding whether to accept, decline, or amend the terms of acceptance. Someone who is assessed to have disproportionately high risks is declined to maintain the sustainability of the risk pool, otherwise everyone’s premiums will need to rise.
Getting declined for life insurance is always painful, and we might be forgiven for feeling indignant. However, we need to understand that insurance is all about managing risk, both for us the consumers and the insurers. Here are 4 of the biggest reasons why you might be declined for life insurance.
# 1 Pre-Existing Conditions
Having pre-existing health conditions means that an individual is likely to have higher mortality risks. Certain medical conditions will affect an insurer’s decision on whether to insure an individual and the premium rates offered. Hence, clients are required to declare any pre-existing health conditions before a policy is approved. If need be, the client may be required to go for a medical examination.
Pre-existing conditions may not necessarily mean a guaranteed denial of life insurance as insurers might still approve the policy with special amendments made, such as exclusions, higher premiums or reduced coverage amount. Clients with pre-existing conditions such as diabetes can look to purchase alternative plans such as AIA Diabetes Care, or plans that specifically account for pre-existing conditions.
This is in no way encouraging any potential clients to lie or hide any pre-existing health conditions as any omission of such information puts the beneficiaries at risk of having their claims denied.
# 2 Having In A Hazardous Occupation
Occupational choice is also one of the considerations for a life insurance policy approval. While you may be in the pink of health and at no risk of disease or death, working in a dangerous field could make insurers reluctant to approve your policy, simply because the risks associated with some jobs are deemed too high to be insured.
For such occupations, even a completely competent worker with an accident-free record has no guarantee that the insurers would offer coverage. Hazardous occupations typically include highly manual and dangerous work like firefighters, oil riggers, offshore workers, etc.
Nonetheless, for high-risk industries, it is likely that the company would provide group insurance for their employees at a lower premium with less scrutiny involved, so you can utilize on the company insurance before getting a private one.
# 3 High-Risk Lifestyle
Just as some occupations are more hazardous than others, there are also recreational activities that are considered dangerous and carry a higher risk of premature death.
Activities deemed hazardous differ from one insurer to another but some of which that fall under grounds for denial include skydiving, bungee jumping and scuba diving. These activities may be a source of excitement in life but they could also be a hindrance when it comes to getting your life insurance approved.
# 4 Incomplete/Inaccurate Application Forms
It is the personal responsibility of the applicant to fulfill his duty of disclosure of any relevant material information at the point of proposal. If proposal forms are incomplete or if the underwriter has identified red flags in the forms, proposals will be denied.
Concealing certain critical information at proposal will also grant the insurer the right to deny beneficiaries the death benefit claims. Even if your erroneous proposal is not declined, incomplete or inaccurate information will lead to a rejection of claims when disaster strikes in the future.
Always remember, honesty is the best policy.
Getting your policy denied after a long process of filling up proposal forms with your agent isn’t the best news to hear. But there are some ways to reduce the chances of being declined for an insurance policy, including buying when you’re young to lock in lower premiums and get full coverage before developing any health issues later in life.
If you already have existing health issues, look out for policies that are specially tailored for special conditions or a higher tolerance for common exclusions. Don’t despair if you were rejected once – try again with other insurers or discuss with your financial adviser on alternative options to pursue.
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