Life Insurance Denial: What You Need To Know

Life insurance is a crucial part of securing your family's financial future. However, not everyone who applies for life insurance is approved. There are several reasons why an application for life insurance may be denied, and it's important to understand these reasons to take proactive measures and navigate the path forward. The denial of life insurance applications can be attributed to health conditions, high-risk occupations or hobbies, lifestyle factors, financial considerations, and age or life expectancy. Understanding your legal rights and protections is essential when facing denial, as these rights ensure fair treatment and prevent discriminatory practices in the industry.

Health conditions

When applying for life insurance, the company will evaluate your health, lifestyle, occupation, and financial stability. This process, known as underwriting, aims to determine the level of risk the insurer would take on by offering you a policy. If the perceived risk is too high, the insurer may deny your application.

It's important to note that age and health are the two most critical factors in determining insurability and cost. Actuarial science proves that a younger, healthier person is less likely to die within a given timeframe than an older, less healthy person.

If you have a pre-existing condition, following your treatment plan and maintaining a healthy lifestyle can improve your chances of obtaining life insurance. Making positive lifestyle changes, such as quitting smoking or losing weight, can significantly impact your application and address previous denial reasons related to health and lifestyle risks.

Additionally, consulting a financial professional or an independent insurance agent can be beneficial. They can provide insights into the application process, identify areas for improvement, and suggest alternative insurance options or policies specifically designed for high-risk individuals.

High-risk occupations or hobbies

High-Risk Occupations

Some jobs are considered high-risk due to their association with a higher risk of accidents and deaths. These include:

• Police officers, especially those in special units like SWAT or the bomb squad
• Firefighters, particularly those working in mines or on oil rigs
• Underground miners
• Pilots, both private and commercial
• Agriculture and forestry workers, including loggers and ranchers
• Construction workers, especially those working with structural steel or on highway construction
• Offshore oil rig workers
• Commercial fishermen
• Roofers
• Iron and steel workers
• Truck drivers and delivery drivers
• Farmers
• Ranchers
• Military personnel deployed to high-risk areas
• CEOs and CFOs conducting international business and spending significant time outside the US or Canada
• Scuba divers

High-Risk Hobbies

Certain hobbies are also considered high-risk due to their potential impact on your health and life expectancy. These include:

• Skydiving
• Racing cars
• Scuba diving
• Mountain climbing
• Rock climbing
• Snorkelling
• Bungee jumping
• Flying private planes
• Hunting

Impact on Life Insurance

If you engage in high-risk occupations or hobbies, you may face challenges in obtaining life insurance. You could be categorised as "high-risk", leading to higher premiums or difficulty finding coverage. However, the impact can vary depending on the specific activity, its frequency, and the insurance provider's policies.

To improve your chances of obtaining life insurance, you may need to work with an independent agent or broker who specialises in high-risk cases. You can also consider guaranteed acceptance policies, which don't require medical exams or deny coverage based on risk factors, but these policies often have lower coverage limits and higher costs.

Lifestyle factors

Smoking and Tobacco Use

Smoking or using tobacco products is a significant lifestyle factor that can increase the cost of your life insurance or even lead to a denial of coverage. Insurance companies view smoking as a high-risk behaviour due to its associated health risks, including an increased risk of heart disease and cancer. Quitting smoking is, therefore, an important step in improving your chances of obtaining life insurance.

Alcohol Consumption

Excessive alcohol consumption is another lifestyle factor that can negatively impact your life insurance application. Alcohol abuse is linked to various health issues and can increase your risk profile in the eyes of insurers. If you have a history of heavy alcohol use, it is advisable to address this issue and make necessary lifestyle changes before applying for life insurance.

Hazardous Activities and Hobbies

Engaging in hazardous activities or high-risk hobbies, such as skydiving, auto racing, or rock climbing, can also affect your life insurance application. These activities increase the chance of accidents and premature death, which insurers consider when assessing your risk level. If you participate in such activities, you may be denied coverage or face higher premiums.

Drug Use

Any form of illegal drug use, including cannabis in some cases, is a red flag for insurance companies. If drug use is detected in your bloodwork or if you disclose it on your application, it is likely to impact your chances of obtaining life insurance. In some cases, insurers may even test for nicotine and consider any form of tobacco or nicotine use as a negative lifestyle factor.

Financial Considerations

Your financial stability and history are also important lifestyle factors that insurers consider. A history of bankruptcy, poor credit, or significant personal debt can indicate financial instability and make it challenging to obtain life insurance. Insurers assess your ability to pay premiums consistently, and a poor financial history may lead to a denial of coverage.

In summary, lifestyle factors play a crucial role in the life insurance application process. It is important to address any unfavourable lifestyle choices and make necessary improvements to increase your chances of obtaining coverage. By reducing your risk profile and demonstrating a commitment to a healthier lifestyle, you can improve your chances of securing life insurance.

Financial considerations

Income and Net Worth

The amount of life insurance coverage you can obtain is typically linked to your income and net worth. Insurers will assess whether the policy amount you're applying for aligns with your financial situation. For instance, an individual earning $20,000 per year is unlikely to be approved for a $1 million life insurance policy. This discrepancy raises red flags for insurers, as it implies a substantial financial gain for someone in the event of your death, which they consider a heightened risk.

Financial Stability and Creditworthiness

Insurers evaluate your financial stability and creditworthiness by examining your credit history, payment behaviour, and debt management. A history of bankruptcy, delinquent payments, unpaid debts, or poor credit can suggest financial instability and an increased risk of defaulting on premium payments. Consequently, these factors can lead to higher premiums or denial of coverage. Insurers prefer applicants who demonstrate consistent and timely payments, a solid credit history, and responsible debt management.

Affordability of Premiums

Insurers will also consider your ability to afford the premiums associated with the policy you're applying for. They will assess your income, expenses, and overall financial situation to determine if you can comfortably make the premium payments throughout the policy's duration. If they deem the policy unaffordable for you, they may deny your application or suggest a policy with lower coverage and premiums.

Non-traditional Income Sources

If you have non-traditional income sources, such as freelancing or rental property income, insurers may request verification of this income. They want to ensure that your total income justifies the policy amount you're applying for and that you can consistently pay the premiums.

Financial History and Insurance Record

Insurers often review your financial history and insurance record, including any previous applications for life insurance. Multiple recent applications or denials of coverage from other insurers can count against you. This information is typically shared through a repository like the Medical Information Bureau (MIB), which contains details about your health history, prescription medications, and life insurance applications.

Age or life expectancy

Age is one of the most influential factors when it comes to determining life insurance premiums. Insurers assess premiums based on multiple personal factors, but an emphasis is placed on mortality risk, and the probability of death rises steadily as people get older. The older you are, the more likely you are to become ill or die while under coverage. This means that as applicants get older, policy costs increase due to the heightened chance of a death benefit claim.

The premium amount increases on average by about 8% to 10% for every year of age, and this can be as high as 12% annually if you're over 50. The older you are, the more stringent the qualifying medical exams become.

Life insurance for seniors can be challenging to obtain, and many insurers stop issuing new life insurance policies to seniors over a certain age, usually around 80. A guaranteed life insurance policy might be one of the only options available to seniors, but these can be expensive and often have a low death benefit cap.

Your life insurance needs might also change as you age. For example, a young person living with their partner with no plans to have children may need less coverage and will often qualify for cheaper life insurance rates. On the other hand, an older person supporting a family or running a business will likely require a larger policy that lasts longer. This policy will likely be more expensive compared to the younger person who needs less coverage.

If you're older and have enough money saved, you may not need life insurance because your investments can generate enough growth to replace your income.

Frequently asked questions