By Sheryl Smolkin

If you are turned down for life insurance by one company, the odds of another carrier agreeing to cover you are slim. So it’s important to understand when life insurance coverage may be denied and what options are available if that happens.

When your application reveals you have or had a serious or life-threatening illness such as diabetes, HIV/AIDS, cancer, heart disease or Lou Gehrig’s disease (ALS), the insurer may charge you higher premiums or postpone coverage for specific conditions until you can show the condition has stabilized. Or, the insurer may refuse to cover you.

Insurance broker Chantal Marr of LSM Insurance* says when she thinks one of these circumstances may apply to a client, she first submits a preliminary inquiry on a no-name basis. Based on the insurance company’s response, she may recommend the client apply for a more expensive “simplified issue policy” that may have a less rigorous screening process.

There are other reasons why a life insurer may red-flag your file when you fill out a preliminary questionnaire. Here are some of them:

1. Obesity: For example, life insurance for a six-foot-tall man weighing 320 pounds will probably be declined, particularly if he has other underlying conditions such as high blood pressure or diabetes.
2. Uncontrolled blood pressure: Erratic blood pressure will typically trigger refusal of your application. If your blood pressure is high, but controlled by medication, most insurance companies will underwrite you.
3. Travel: An insurer can decline your application if you plan to travel to a region it views as dangerous or unstable. Your option is to exclude your trip from the policy or start your policy once you are back.
4. Alcohol use: Three or four beers a day will probably bump up your premiums. More than that and coverage will likely be refused, depending on the carrier.
5. Drug use: Use of illegal drugs such as cocaine, crack or heroin is a no-go. Marijuana users will be treated as smokers and pay twice the premiums of non-smoking applicants.
6. Dangerous recreational activities: Are you a rock climber or skydiver? Some providers offer a high-risk insurance policy that includes such activities.
7. Dangerous occupation: People with dangerous jobs such as miners, pilots and members of police bomb squad teams may need to seek coverage from specialized carriers or available workplace group coverage.
8. Careless driving or DUI: Careless driving or driving while impaired by alcohol or drugs can pose a life-threatening situation. Therefore, some insurers will either deny a life insurance application or cancel an existing policy if you have a record of such behaviour.

In some cases, lifestyle changes will improve your insurability. You can get into better physical shape and stop smoking, drinking or taking drugs.

But if your application is likely to be declined for other health-related reasons, you may improve the odds by applying for a simplified issue policy based on a less complex questionnaire and no medical examination.

“Simplified issue insurance is more expensive and has lower maximums,” Marr says. “So if you need $500,000 in life insurance, we may have to cobble together coverage from a number of carriers,”

Guaranteed policies (often referred to as funeral policies) may also be a partial solution. They require no health information whatsoever but coverage is typically limited to small amounts up to $25,000. There may also be a waiting period (usually two years), so if you die within that period, your beneficiaries will only receive a return of premiums.

Application acceptance outcomes for all types of policies can vary across numerous life insurers. As a result, it can help to work with an experienced insurance broker who regularly deals with many life insurance companies and understands their policies and practices.

Also, where you are eligible for group life insurance at work, make sure to apply for the non-evidence maximum benefit available to you, regardless of your health.

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*LSM Insurance Brokers is located in Markham, Ontario. They have a working relationship with Delorie Jacobs and Gord Martens affiliates with the Sentinel Financial Group headquartered in Saskatoon.

By Sheryl Smolkin

Suppose your employer pays for group term life insurance equal to one times your salary. You also have the opportunity to buy more. How do you know how much additional life insurance you need and whether buying it at work or independently makes the most sense?

The following basic calculation can help you assess your insurance needs:

Insurance coverage required = total outstanding debts + funeral costs + education funding for children + (annual cash flow needed by the survivor to remain debt free x number of years cash flow is required).

You can also plug more detailed numbers into this online calculator. Once you know how much insurance you need, you have to consider the pros and cons of additional group term life vs individual coverage.

While employer-paid premiums for your basic coverage are typically lower than individual life, you may be surprised to learn that this does not necessarily apply to employee-paid additional optional group life insurance. That’s because you will have to undergo a medical examination in both cases, and your age and health status could drive up the cost of optional group life to the same or higher levels than individual life.

Furthermore, if you need coverage for an extended period, group insurance is often more expensive than individual rates since group rates tend to increase annually or on an age-banded basis while individual life premiums remain the same for a specified period.

Even when you compare individual polices to group rates, if you look at the total cost over the needed coverage period group plans rarely come out ahead. Although an individual policy may be slightly more expensive, the value of the policy is greater because the employee owns it outright and premiums are guaranteed for a specific period – say 10, 20 or 30 years.

It is also important to recognize that unlike optional group life, individual policies can offer preferred rates to people who are in good health and have an excellent family health history. In these circumstances, it may be a smart decision to buy up on individual term insurance instead of adding optional group life coverage.

Conversion of optional group life insurance can also be a problem if you change jobs or are out of work. Some group policies allow you to convert the coverage into an individual policy within 30 days of leaving the company without medical underwriting.

However, because no medical underwriting is required, group conversions are typically priced higher than standard rates.  Also, some group policies only allow employees to convert the insurance to a permanent policy, which is more expensive than individual term coverage and may not be what you need.

So do the math. You can compare quotes for individual term life on this website and then figure out what topping up your basic employer paid group insurance plan will cost you over an extended period. You may discover that individual life insurance will be cheaper in the long run as you age, even if you change jobs or poor plan experience drives up rates under your employer’s plan.

Also see: 

Group vs Individual Insurance By Cecilia Tsang

Group vs Individual Insurance By Chantal Marr

Individual Life Insurance vs. Group Life Insurance