Therapy And Life Insurance: Can You Be Denied Coverage?

Life insurance is a crucial part of securing your family's financial future. However, not everyone who applies for life insurance is approved. Insurance companies have to balance the risk they take on. If an insured person dies, they pay out a lot of money. If insurance companies approved everyone who applied, it wouldn’t take long for them to go bankrupt. To ensure they remain financially secure, insurers use a process called underwriting to determine the risk each applicant carries. Underwriters review the application and may also examine additional records, including prescription history, medical records, motor vehicle records, and financial and criminal history. The insurer may decline the application if the applicant is considered too risky. Mental health diagnoses are among the factors that can impact life insurance applications.

Mental health diagnoses can be flagged as a pre-existing illness and impact future services

Mental health diagnoses can have long-term consequences and impact future services. When using insurance to cover therapy costs, a diagnosis is required to establish medical necessity. This diagnosis becomes a part of an individual's permanent medical record and can be flagged as a pre-existing illness. This can, in turn, affect one's ability to obtain future services, such as health insurance. For example, if an individual is an entrepreneur or business owner applying for financing, their medical record, including any mental health diagnoses, will be reviewed as part of the vetting process.

Additionally, mental health diagnoses do not have a statute of limitations, and there is no way to remove this information from one's record after treatment or when an individual is symptom-free. This means that a mental health diagnosis can impact an individual's insurance options and premiums in the future, even if their mental health has improved.

Furthermore, the use of insurance for therapy can result in a loss of confidentiality. Insurance companies gather detailed information about an individual's treatment, including notes from each session, treatment plans, goals, and documentation of mental health symptoms. This information may be accessible to potential employers or other institutions, which can be concerning for those in certain professions or seeking specific career paths.

The potential consequences of using insurance to cover therapy costs can be significant and should be carefully considered. While therapy can be costly, there are alternative payment options available, such as using pre-tax dollars through Health Spending Accounts (HSA) or Flexible Spending Accounts (FSA). Working with an out-of-network provider and submitting a Superbill for reimbursement directly from the insurance company is another option that allows individuals more control over their treatment and confidentiality.

Overall, while insurance can provide a way to cover therapy costs, it is important to be aware of the potential impact on future services and confidentiality. The long-term consequences of a mental health diagnosis on one's record can affect various aspects of an individual's life, and alternative payment methods may be preferable for some.

Insurance companies may request a patient's medical records for evaluation

When applying for insurance, individuals may be asked to provide access to their medical records. This is a common procedure, especially for life insurance, as it enables insurance companies to assess the risk associated with insuring a particular individual. By reviewing medical records, insurance companies can evaluate an applicant's overall health and determine the appropriate premium for their policy.

In the United States, individuals are generally not required to share their medical records with anyone, including insurance companies. Medical records are protected by the Health Insurance Portability and Accountability Act (HIPAA), which ensures that an individual's medical information is kept private and confidential. This includes printed records, computer records, and any information disclosed at a health provider's office.

However, there are exceptions to the HIPAA privacy rule. For instance, your doctor or health insurance company can share your private health information without your permission for treatment, healthcare, and public health reasons. Additionally, your doctor can share your information with a hospital where you will have surgery or a specialist treating you. But your doctor cannot disclose your private health information to a life insurance company without your specific written permission.

While insurance companies have limited access to medical records, they can obtain necessary information through various means. They often belong to the Medical Information Bureau (MIB), which contains coded information about medical conditions. Insurance companies use these codes to assess if further information is required before insuring an individual. Additionally, once an individual has insurance, their healthcare and pharmacy providers share relevant information with the insurer via billing communication to authorize payment for treatments.

It is important to note that individuals have the right to protect their health information and privacy. They can decide what stays confidential and what an insurance company can access. Consulting a lawyer before signing any authorization forms or providing access to medical records is always recommended, as insurance companies may try to use the information to deny claims or undervalue damages.

Life insurance companies balance the risk they take on by using a process called underwriting

Medical underwriting examines an individual's health and lifestyle factors, including age, medical history, habits, and occupation, to evaluate the risk they present to the insurer. On the other hand, financial underwriting focuses on ensuring that the coverage amount aligns with the applicant's financial needs and circumstances. Insurers may review income, assets, liabilities, and other financial indicators, along with the applicant's credit history and existing insurance coverage.

The underwriting process for life insurance is meticulous and involves several stages. It begins with completing an application that covers personal, health, and financial information. This is followed by a medical examination to confirm the applicant's health details. The underwriter then analyzes various data points, including prescription history, medical records, motor vehicle records, credit history, and sometimes a background check. The underwriter assesses the applicant's life expectancy and assigns an insurance classification rating, which indicates the applicant's insurability based on health and lifestyle factors. The rating assigned impacts the premium and coverage amount offered by the insurer.

The time frame for life insurance underwriting can vary, typically taking between two to eight weeks. However, it may be longer if the insurer has additional questions or needs further information from the applicant's doctor. Some insurers offer accelerated underwriting for no-medical-exam policies, and a few providers even offer same-day approval.

Underwriters review the application and may examine prescription history, medical records, motor vehicle records, and financial and criminal history

The underwriting phase of a life insurance application involves a thorough review of the applicant's information to determine their level of risk to the insurance company. This process is crucial in setting the premium cost and can take anywhere from a few days to several weeks. During this phase, underwriters may examine various aspects of the applicant's history, including prescription history, medical records, motor vehicle records, and financial and criminal history.

Prescription history is reviewed to understand an applicant's current health status and any underlying conditions they may have. Underwriters may request records from pharmacies or prescription benefit managers to verify the medications an applicant is taking. This information is essential in assessing the applicant's overall health and identifying any potential risks or issues.

Medical records are also scrutinized by underwriters to gain a comprehensive understanding of the applicant's health history. This includes information about past illnesses, surgeries, treatments, and any ongoing medical conditions. Underwriters may contact the applicant's physicians to obtain these records and gain insights into their medical history.

Motor vehicle records are another area of interest for underwriters. They may review driving records to identify any moving violations, DUI convictions, or a history of suspended licenses. These factors can impact the applicant's risk profile, particularly if they engage in frequent driving or have a history of unsafe driving behaviour.

Financial history is also taken into account during the underwriting process. Underwriters may examine an applicant's income, net worth, assets, and ability to pay premiums. This information helps ensure that the applicant can afford the premiums associated with the desired level of coverage. It also allows the insurance company to assess whether the amount of coverage being sought aligns with the applicant's financial situation.

Additionally, underwriters may review criminal history records to identify any criminal convictions. This is particularly important for life insurance applications as certain convictions, especially those related to violent crimes, can impact the applicant's eligibility for coverage or result in higher premiums.

The information gathered and reviewed by underwriters during this phase is crucial in determining the applicant's risk profile and setting the premium cost. While the process can be lengthy, it helps ensure that the insurance company has a comprehensive understanding of the applicant's health, lifestyle, and potential risks. This enables them to make informed decisions about coverage and premium pricing.

If deemed too risky, the insurer may decline the application

Life insurance companies have to balance the risk they take on. If an insured person dies, they pay out a lot of money. To ensure they remain financially secure, insurers use a process called underwriting to determine the risk each applicant carries. Underwriters review the application and may also examine additional records, including prescription history, medical records from the past few years, motor vehicle records, and financial and criminal history. The insurer may decline their application if the applicant is considered too risky.

If you have a mental health diagnosis, this can impact your future ability to obtain services like health insurance and life insurance. Mental health diagnoses do not have a statute of limitations, so the diagnosis stays on your medical record and can get flagged as a "pre-existing illness". This can lead to higher premiums or even application denial.

Certain mental health conditions that have a higher likelihood of suicide, such as severe anxiety or depression, schizophrenia, and substance abuse, may result in higher premiums than other mental illnesses, lower coverage limits, or even application denial. If you lie about your mental health diagnosis on your application, this can also lead to denial or charges of insurance fraud.

However, if you have been denied life insurance due to mental health challenges, there is good news: you may be able to find a policy that works for your needs. It can be important to shop around and work with an experienced life insurance broker who can shop around on your behalf. There are also alternative options such as guaranteed issue life insurance, which does not require a medical exam or questionnaire, or group life insurance offered by employers.

Frequently asked questions