It is not surprising that so many potential life insurance applicants subscribe to commonly held misconceptions about coverage. Life insurance companies are not monolithic in their offerings, and therefore consumers would be wise to do their due diligence before deciding where they make their life insurance purchases.
Policies and underwriting guidelines can vary from insurer to insurer, leading to some confusion about industry standards, and the underwriting process itself – which involves a holistic risk assessment of the applicant, evaluation of coverage, and premium payment setting – lacks transparency. As such, potential applicants are often stumped as to what results they can reasonably expect from their life insurance applications.
This informational asymmetry, when combined with pervasive misconceptions about life insurance coverage, hurts potential applicants by pushing them away from quality plans. For the potential life insurance applicant, clarity is power. Let’s put some of these common myths and misconceptions to rest.
Life Insurance Myth #1 – I am uninsurable if I have a pre-existing medical condition
Though it can be difficult for applicants with serious pre-existing medical conditions to get coverage, life insurance companies have expanded their offerings and their underwriting processes over the years such that coverage may be possible, albeit with adjusted premiums.
Consider high blood pressure, for example. High blood pressure is usually not enough to disqualify an applicant, but the insurer may adjust the risk class and premiums of an applicant suffering from high blood pressure. On the other hand, if the applicant has controlled their blood pressure properly with diet, exercise, and/or medication, then it is still possible for the insurer to place the applicant in a low risk class (such as preferred plus, or preferred) with correspondingly low premiums.
Even cancer sufferers are not necessarily uninsurable. Onset, type, stage, and general prognosis will all be considered by the insurer during the underwriting process. Of course, premiums will likely be adjusted to reflect the increased risk taken on by the life insurance company.
Insurance coverage and premiums depend largely on the type and severity of the condition. A pre-existing medical condition by itself is not necessarily an absolute bar to life insurance coverage.
Even if your life insurance applications are denied, however, you are not without recourse. Applicants who have been refused life insurance coverage due to a pre-existing medical condition should consider applying for a high risk life insurance policy (alternatively known as an impaired risk life insurance policy). High risk life insurance is intended to provide coverage to those applicants who are suffering from a significant pre-existing condition or who engages in risky activities. High risk life insurance is a reasonable alternative if you cannot be approved for a standard life insurance policy, but be aware that the premiums and benefits will be adjusted to account for the heightened risks.
Life Insurance Myth #2 – Insurers won’t find out if I withhold information on my application
Life insurance companies are equipped with myriad tools and are given access to significant data resources for investigating an applicant’s claims. Your insurer is quite likely to discover any misrepresentations and inconsistencies in the application.
Insurers have access to Medical Information Bureau reports (which includes medical information shared by other life insurance companies), doctor’s visit reports, pharmaceutical records, motor vehicle reports, and credit reports. They may also request a thorough medical exam and a litany of specific tests, such as a urinalysis, cognitive test, and hair sample test to check for drug use. With these tools, a life insurance company is well-equipped to investigate and verify any of the claims you made on your application.
If the insurer does discover that you have withheld information, lied, or otherwise misrepresented the facts on your application, you can be penalized in a variety of different ways. If the application has not yet been approved when the insurer discovers a significant misrepresentation, then the insurer can choose to deny coverage outright, or choose to readjust the premiums and insurance risk classification of the applicant. If the insurer discovers a significant misrepresentation after the application has already been approved and the policy is underway, then the insurer may choose to rescind the policy outright, maintain the policy but readjust the premiums, or even refuse to pay death benefits.
Life Insurance Myth #3 – Life insurance is only for rich people
Unfortunately, many middle and working class people that could benefit from a comprehensive life insurance plan do not apply. Popular perception is that a quality life insurance plan is expensive, or that to qualify for benefits requires substantial assets or income level.
Most insurance seekers grossly overrate the costs of life insurance. In reality, the insurance market is mature and diverse enough that there are quality life insurance plans available to suit a wide variety of financial realities. For those looking to maximize their insurance coverage, but who have a more limited ability to pay monthly premiums, term life insurance options offer lower initial premiums than permanent life insurance alternatives – this can make payments much more manageable in the early stages.
There are some very cheap life insurance policies on the marketplace for applicants who are financially limited, but low cost comes with certain limitations. Death benefits may not pay out except in a more narrowly defined set of circumstances (e.g. exclusions), but these circumstances need not be so narrowly defined as to present a significant barrier. Your life insurance agent may be able to work with you to design a life insurance plan that strategically lowers the cost while maximizing coverage.
Life Insurance Myth #4 – I am young and have no dependents. I don’t need life insurance
Life insurance is not solely for committed, older couples with numerous dependents; there are sound reasons for purchasing a life insurance plan when you are young and without dependents.
As a general rule, the younger you are, the lower your premiums (as the insurer considers the age of the applicant when assessing risk and premium rates during the underwriting process). Further, most young people tend to be healthier and have fewer indicators of medical issues that might affect them down the road. A thirty year old applicant may not test for high blood pressure, for example, whereas that same applicant might test for high blood pressure fifteen years later. This competitive advantage further drives the cost of a comprehensive life insurance plan down for younger applicants.
Purchasing a life insurance plan early locks in your health status when it is likely at its best, thus securing the lowest possible premiums for the term of the plan. The plan itself need not be inflexible, however. Depending on the specifics of your life insurance policy, you may be empowered to adjust coverage as your needs change over time.
Life Insurance Myth #5 – The details of my life insurance plan are set in stone
Life insurance coverage is not meant to be inflexible. Over the years, you are expected and encouraged to review your insurance plan to ensure that it meets your changing needs.
When reviewing your plan, significant life events should be given priority consideration. Marriage, divorce, the birth of a child, the death of a family member – each of these events may require an update to the beneficiary designations (who is entitled to receive death benefits), contact information, and other record changes.
As the circumstances of your life change, you may find that your coverage needs have changed, too. If circumstances allow, you might prefer to reduce your life insurance coverage so as to lower your monthly premiums. Alternatively, you might like to convert your term life insurance plan to a permanent life insurance plan. With additional dependents, you may want to upgrade your existing coverage and increase your death benefit payout.
Simply put, life insurance policies are actually quite flexible, even years down the line. It is good practice to regularly review your coverage and to update your coverage as necessary.
There is a great deal of misinformation in popular culture concerning life insurance and the underwriting process. Do not let these misconceptions prevent you from seeking out proper life insurance coverage. Give Big Lou® a call today or request a life insurance quote online and we’ll walk you through the process of securing affordable life insurance.