Mental Illness: Life Insurance Options And Availability

Mental illness is common, with around one in five adults in the US experiencing a mental health condition each year. Despite this, many people with mental health issues worry that their diagnosis will make it difficult to get life insurance coverage. While it is true that a mental illness can affect your life insurance rate, it is still possible to qualify for a policy.

What is considered a mental health condition?

Mental health conditions are defined by the Centers for Disease Control (CDC) as "conditions that affect a person's thinking, feeling, mood, or behaviour". Mental disorders are characterised by clinically significant disturbances in an individual's cognition, emotional regulation, or behaviour. Mental health conditions are treatable and can be temporary, but they can also be chronic and severe.

Mental health conditions can manifest in many different ways, and they can be triggered by a combination of factors, including stressful life events, genetics, and physical health. Mental disorders can be associated with distress and impaired functioning in social, work, or family activities. They can also increase the risk of self-harm and suicide.

Some common mental health conditions include:

• Anxiety disorders: Excessive fear, worry, and related behavioural disturbances.
• Depressive disorders: Persistent feelings of sadness, irritability, emptiness, or loss of pleasure or interest in activities.
• Bipolar disorder: Alternating periods of depressive episodes and manic symptoms, such as euphoria, irritability, increased activity, and impulsive behaviour.
• Post-Traumatic Stress Disorder (PTSD): Re-experiencing traumatic events, avoidance of reminders, and persistent perceptions of heightened current threat.
• Schizophrenia: Impaired perception, changes in behaviour, persistent delusions, hallucinations, and disorganised thinking.
• Eating disorders: Abnormal eating habits, preoccupation with food, and body weight and shape concerns.
• Attention Deficit Hyperactivity Disorder (ADHD): Persistent pattern of inattention and/or hyperactivity that impacts academic, occupational, or social functioning.
• Borderline personality disorder: Impulsive and unstable mood, self-image, and behaviour.
• Dissociative disorders: Disturbances in memory, consciousness, identity, and perception.
• Obsessive-Compulsive Disorder (OCD): Unwanted, intrusive thoughts and repetitive behaviours.

How does mental health impact life insurance?

Mental health can impact life insurance in several ways. Firstly, it can affect the approval and cost of life insurance policies. Individuals with mental health conditions may face higher premiums or even denial of coverage, depending on the severity and nature of their condition. Factors that insurers consider include the type of mental health diagnosis, treatment history, hospitalization records, and the impact of the condition on daily functioning and employment.

Secondly, mental health can influence the type of life insurance available. Individuals with mental health conditions may be directed towards specific policy types, such as simplified issue or guaranteed issue life insurance, which have lower coverage amounts and higher premiums. Alternatively, group life insurance through an employer or no-medical-exam life insurance options may be more accessible.

Thirdly, mental health can impact the application process for life insurance. Applicants may be required to disclose their mental health history, treatment plans, medications, and hospitalizations. In some cases, a medical examination and bloodwork may also be necessary. Failure to disclose mental health information or providing inaccurate details can be considered insurance fraud, leading to potential consequences such as policy cancellation or difficulty obtaining insurance in the future.

Lastly, mental health can play a role in the timing of applying for life insurance. Waiting for a period after the initial diagnosis or treatment can be beneficial, as insurers often look for stability and consistency in treatment and improvement in symptoms. This delay could result in more favourable rates and approval odds.

What happens if you lie about your mental health?

Lying about your mental health on a life insurance application is considered insurance fraud and can have serious consequences. While it might feel tempting to gloss over certain details in hopes of securing a lower premium, the risks far outweigh the rewards.

Insurance companies are meticulous in verifying the information provided on applications. They will likely uncover any inconsistencies between your insurance application and your medical files. They can access your medical records, driving history, and prescription history. They also have access to the Medical Information Bureau (MIB), a database that contains coded data about medical conditions and risk factors. While the MIB protects individuals' privacy by using a system of proprietary codes, any alerts from the MIB may prompt further investigation by the insurer.

If you lie about your mental health and the insurance company finds out, your application will likely be denied. This denial will be logged into the MIB database and shared with other insurance companies, making it more difficult and expensive to obtain coverage elsewhere.

Even if you manage to obtain a policy despite lying, there are still consequences. Most insurance policies have a contestability period, typically lasting two years, during which the insurance company can investigate any claims or discrepancies in your application. If they uncover intentional misrepresentation or falsehoods, they may deny your claim, cancel your policy, or reduce the death benefit.

In rare cases, lying on a life insurance application can lead to criminal charges, including fines, restitution, or even jail time.

Therefore, it is essential to be honest about your mental health on a life insurance application. While it may seem challenging to obtain coverage with a mental health condition, there are options available, such as guaranteed issue life insurance or group life insurance.

What are the best life insurance companies for people with mental health conditions?

According to MoneyGeek, the best life insurance companies for people with mental health conditions are Prudential, Pacific Life, and Legal & General America.

Prudential

Prudential has an A+ AM Best rating, indicating strong financial ability to pay out life insurance claims to beneficiaries. It also has a high customer satisfaction score of 753 out of 1,000 from J.D. Power and a low NAIC national complaint index. Prudential offers competitive rates for medical conditions, including moderate or severe anxiety, depression, and bipolar disorder. It provides several term and universal life options with generous rider offerings. Prudential also has lenient underwriting guidelines for people with multiple pre-existing health conditions.

Pacific Life

Pacific Life has an A+ AM Best rating and a high J.D. Power customer satisfaction score of 801 out of 1,000. It offers life insurance for anxiety, depression, bipolar disorder, and schizophrenia. Those with mild to moderate anxiety or depression who are taking no more than two medications could qualify for Pacific Life's preferred rating class. However, Pacific Life will deny coverage if there has been a suicide attempt in the last two years.

Legal & General America

Legal & General America has an A+ AM Best financial rating and its underwriting companies, Banner Life and William Penn, have low NAIC complaint indexes. It offers competitive underwriting classification rates for individuals with well-controlled anxiety and depression. Those not currently on medication and with no more than one episode may qualify for a preferred plus rating. Legal & General America also offers term and universal life options with various riders, but bipolar disorder is disqualified if diagnosed less than a year ago, and severe depressive episodes are declined.

In addition to these companies, people with mental health conditions can also consider guaranteed issue life insurance, which does not require a medical exam or health questionnaire, although the death benefits are typically capped at a lower amount. Group life insurance, offered through employers, is another option that does not require medical underwriting and is often inexpensive and easy to obtain.

What are the options if you can't qualify for a standard policy?

If you can't qualify for a standard life insurance policy, there are still a few options available to you.

Group insurance

Group insurance is where an insurer provides coverage to a company's employees under one plan. You can often participate in group insurance even if you are experiencing a mental health issue, as the insurer is willing to accept high-risk employees because most of the group will be considered low risk. Group insurance is also often more affordable.

Guaranteed life insurance

Guaranteed life insurance is available to most people within a certain age bracket, regardless of their health issues. It usually doesn't require physical exams but can be more expensive than other types of insurance.

Guaranteed issue life insurance

If you've been turned down for coverage previously, guaranteed issue life insurance might be a good option. You don't need to complete any health questionnaires and there is no medical exam. As long as you meet the age requirements (typically available to those aged 50 to 80), approval is guaranteed. However, the available death benefits are typically capped at around $25,000, and there is often a two-year waiting period before your beneficiaries can receive the full death benefit.

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