Life insurance is intended to replace lost income, pay off debt and leave an inheritance after the death of a loved one. But for Americans with disabilities, getting this important financial protection can present a challenge.
"I have a 21-year-old son who can't get life insurance," says Lisa Bamburg, co-owner of Insurance Advantage and LMA Financial Services in Jacksonville, Arkansas. Her son is by all appearances healthy, but a diagnosis of autism at age 4 has left him uninsurable. People with severe physical or cognitive impairments like dementia may find they are also ineligible for coverage.
"If you don't work at all, that could potentially knock you out as well," says Shervin Eftekhari, president of Zander Insurance Group in Nashville, Tennessee. That's because insurers are looking for clues to gauge the overall health of an applicant and how a disability affects that person's mortality. Even if someone is not completely honest on his or her application, prescription records and employment history could hint at a pre-existing condition.
Still, those with disabilities shouldn't assume life insurance is out of reach. Most companies handle applications on a case-by-case basis. People can improve their chances of approval by taking steps to improve their health and proactively address concerns insurers may have. However, even if an application is denied, those with disabilities may be able to find coverage through employer benefits or guaranteed issue plans.
Keep reading to learn more about how insurers make coverage decisions and how to buy life insurance if your application is denied.
Remember: A disability doesn't equate to life insurance denial. Life insurance applications go through an underwriting process in which they are reviewed for details such as a person's health background, medications and family history. In addition to looking at written medical records, insurers also schedule a medical exam that may include testing blood and urine, as well as checking health indicators such as blood pressure, pulse and weight.
"An underwriter has several options when approving an applicant for life insurance," says Jeff Benowitz, a financial representative with Certified Financial Services in Paramus, New Jersey, an agency of The Guardian Life Insurance Company of America. The application can be approved as applied for, denied or approved with certain stipulations, like a waiting period before claims can be made. Some riders, such as a waiver of premiums in the event of a disability, may not be offered as well.
Once an application is approved, it is assigned a rate class. Those with excellent health are eligible for lower premiums, while those who have health concerns may be approved for coverage but pay higher rates.
While underwriters review medical data, there are limits to what they can request when reviewing an application. For instance, an underwriter cannot make an applicant with a disability go through more medical testing than an applicant who does not have a disability, Benowitz says.
Improve your odds of securing an affordable rate. Fortunately, there are steps you can take to boost your chances of receiving approval for life insurance.
Benowitz says the first step is requesting a copy of his or her medical records. "Sometimes an applicant will be surprised by what a physician has written down on their chart," he says. "It is always better to be able to explain a note in a medical chart with the application as opposed to after the underwriter has received the records independently."
When it comes to applying, Eftekhari suggests finding an agent or broker who works with multiple insurance companies and can compare quotes from multiple providers to find the best rate. An agent may also be able to best identify which firm is most likely to grant coverage. Brokers can submit an anonymous preliminary inquiry on behalf of clients to gauge whether a company would be receptive to approving a full application. To find someone experienced with that process, look for an insurer who specializes in high-risk approvals. A trusted financial advisor, friend or relative may be able to make a recommendation.
People with disabilities can also take steps to ensure their condition is well-managed. Eftekhari uses the example of someone diagnosed with post-traumatic stress disorder.
"[If a] person is going to follow-up appointments and working in a job, that person will [likely] get coverage at a good rate," he says.
Consider your options for guaranteed coverage. Those who are unable to get life insurance through the traditional underwriting process may still be able to get coverage. Many workplaces offer life insurance as part of a compensation package, and these group plans typically do not require any medical questions or examination. The only snag: Coverage often ends when a person's employment ends.
Some companies also sell what is known as guaranteed issue life insurance. These plans have no underwriting requirements and are available even to those with significant health concerns or who are at an advanced age. However, premiums can be significantly higher than what someone would pay elsewhere for the same level of coverage. Despite the cost, these plans are often used by those in need of burial insurance to cover their financial expenses. Though guaranteed to be issued, consumers need to be aware of any waiting periods or other restrictions on these plans that could limit the ability to make a claim.
Before going that route, Bamburg recommends people make sure they can't get more affordable life insurance elsewhere. "Call an insurance agent and explore that possibility before you say you can't get it," she says.