What To Do If You've Been Turned Down For Life Insurance

12/02/2020 19:20 Comment(s)

A good insurance broker will very seldom submit a clients application for underwriting without being relatively certain that they will be covered. We called this field underwriting, end it is just what it sounds like: As an agent, I know your companies' underwriting guidelines and I know the right company to sub,it the application to. (That's why you're asked such invasive questions during our initial fact-finding conversations!)

Life isn't always perfect though, and sometimes we missed something in the field that underwriters in the home office will latch onto and decline you for. Typically, this is something as simple as a client forgetting that they were on a medication several years ago and not disclosing that. When the underwriting department at the insurance company pulls your medical records, they will find it even if you have no recollection whatsoever of that event. These things happen though, and there are always alternatives if you find yourself in a position where your application for coverage is denied.

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Buy an Accidental Death Policy

Accidental death coverage is an option that has much less restrictive underwriting requirements then term or even whole life coverage. One example that we come across regularly is a recent DWI. This can create underwriting challenges, especially if you're still on probation. For many of our clients, accidental death coverage can be an excellent option. The covered events are more limited than a typical life policy, but for many people this a good stopgap to ensure that their family is taken care of if they die in an accident.

Buy More Group Coverage

Group life plans are no substitute for a personal policy in the long term. They lack the living benefits that make a life insurance policy much more than a death benefit. More than that, what happens when you quit your job? Your insurance ends!

That said, any good agent, myself included, will tell you that for the few dollars per month that you are paying for your group coverage, you should already on every penny that you can possibly get without a medical exam. Many employers offer coverage with absolutely no underwriting requirements other than a pulse and current employment, so for someone with underwriting challenges (who hasn't already taken my advice and bought as much group life insurance as they could without a medical exam) this can offer extra coverage until you can get your own policy.

Self-Insure

Too many people say that they will self-insure, but never do it. I can't tell you how many people I've talked to who said "for what I would for life insurance, I could just save $25,000 to cover my funeral." These are always the people who have a negative balance in their checking account and no plan to take care of their loved ones. So for most people, self insurance is just a pipe dream.

That being said, it is possible to self-insure. By this, I simply mean saving the money that you would put into a life insurance policy end doing that in a way that your wealth will transfer to the next generation-or whomever your beneficiary is.

An excellent way to do this, is with a deferred annuity. I talk more about annuities here, but in this case, the idea is that you put into your annuity however much you would be putting into an insurance policy. Like a life insurance policy, you name a beneficiary and you can even decide how they will get the money – in a lump sum or in a specified number of payments. This can be a good way to pass well from one generation to the next because the annuity is not taxed until it is distributed.

It takes a little more planning and professional tax guidance, but you can certainly achieve some of the tax benefits of life insurance even if you aren't able to get coverage yourself. The downside of this compared to life insurance, is that there is no level death benefit. Your beneficiary gets what you put into it. If you don't have a significant amount of time to save, this isn't a good option.

Buy a Guaranteed Issue Policy

If you are like most people, and self insuring is not a good option for you and you've already maxed out your coverage at work, it is probably worth your money to buy a guaranteed issue policy. This is a type of whole life insurance that can be issued with very few underwriting requirements-often, you can even get coverage if you were currently in the hospital.

Many people avoid guaranteed issue because the premium is more expensive. On the surface, that makes sense. It's hard to justify paying almost twice as much for coverage as someone with no existing health issues. The reality though is that your goal is to take care of your family and traditional life insurance is not in the cards for you. instead of focusing on how cheap it could be, it's important to focus on the fact that you can get coverage. And remember, self insurance is probably not a good option for you. That should not be your excuse to not get coverage.