Life Insurance Rejection: What Are The Legal Risks?

Life insurance is a crucial financial tool that helps protect your family's future. However, getting approved for life insurance can be challenging. Several factors, including health conditions, high-risk occupations or hobbies, lifestyle choices, financial considerations, and age, can lead to life insurance application rejections. It's important to understand the reasons for rejection and know that there are options available. You can consider appealing the decision, consulting a financial professional or insurance agent, and exploring alternative insurance policies. Understanding your legal rights is also essential to ensure fair treatment and prevent discrimination.

High-risk health conditions

Being denied life insurance can be a stressful experience, especially if you have a family that relies on your income. However, it's important to remember that you're not alone, and there are options available to you. People are typically denied life insurance because they fall into a high-risk category, often due to health challenges or risky lifestyle habits. Here are some factors that can contribute to being considered high-risk:

• Cancer: A history of cancer, especially certain types, can put you in the high-risk category. Insurers may block you from buying a policy until you've been cancer-free for several years.
• Heart Attack/Heart Disease: A history of heart attack or heart disease can impact your ability to get life insurance. People who have had one heart attack are often at risk of having another, which poses additional risk.
• Stroke: A history of strokes, especially recent or complicated strokes, can make it challenging to obtain life insurance.
• HIV/AIDS: Even with treatment, a diagnosis of HIV/AIDS will typically land you in the high-risk pool due to shorter life expectancies associated with these diseases.
• Kidney Disease: Kidney disease is a chronic condition requiring routine medical maintenance and can lead to complications such as stroke, further contributing to your overall risk.
• COPD (Chronic Obstructive Pulmonary Disease): This condition impacts breathing and affects millions of adults in the United States, influencing treatment costs and life insurance risk.
• Poorly Managed Conditions: Conditions like high cholesterol, diabetes, and sleep apnea are common but can lead to further health issues if not properly managed, increasing your risk.

It's important to note that having a chronic condition is not the only factor considered when determining your risk level. Your lifestyle, occupation, hobbies, and habits can also play a significant role in the insurer's assessment.

Other Factors Affecting Risk Assessment

• Occupation: Dangerous occupations, such as logging, fishing, roofing, and construction, can increase your risk of injury and death, leading to higher insurance rates or even rejection.
• Hobbies: Thrill-seeking hobbies like scuba diving, mountaineering, skydiving, and motorcycling are considered risky and can impact your insurance rates.
• Nicotine Use: Smoking, vaping, or chewing tobacco are health risks that can lead to cancer and COPD, making life insurance companies view you as high-risk.
• Alcohol Consumption: Drinking more than the moderate levels recommended by the CDC can have negative health impacts, leading insurance companies to consider this a lifestyle risk.
• Driving Habits: Speeding tickets and driving violations can affect not only your auto insurance but also your life insurance costs.

If you fall into the high-risk category, you may encounter limited coverage options and higher rates. However, it's worth shopping around and comparing quotes from various insurers, as their criteria for classifying high-risk individuals can vary significantly. Working with an independent life insurance agent or an impaired risk specialist can also help you navigate the process and find the best options for your specific circumstances.

High-risk jobs or hobbies

If you have a high-risk job or participate in risky hobbies, you may be considered a high-risk applicant for life insurance. This means that you could be denied coverage or offered a policy with a low limit and a higher rate to offset the insurance company's risk.

High-Risk Jobs

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

• Police officers (especially those in special units like the bomb squad or SWAT team)
• Firefighters (particularly those working in mines or on oil rigs)
• Underground miners
• Pilots (both private and commercial)
• Loggers and, in some regions, farmers and ranchers
• Construction workers (especially those working with structural steel or on highway construction crews)
• Offshore oil rig workers and commercial fishermen

High-Risk Hobbies

Hobbies that are considered high-risk include those that are inherently dangerous and may increase the likelihood of a payout on your policy. These include:

• Skydiving
• BASE jumping
• Rock climbing and mountain climbing
• Drag racing
• Motocross and supercross
• Recreational aviation
• Hang gliding and paragliding
• Scuba diving
• Big-wave surfing
• Amateur racecar driving

Impact on Life Insurance

If you engage in high-risk activities, either through your job or hobbies, it is important to understand how this can impact your life insurance options. You may be offered a policy with higher premiums, a lower coverage limit, or a waiting period before a full payout is made to your beneficiaries.

Additionally, insurance companies may consider the frequency of your participation, your level of experience or certification, and any safety precautions you take while engaging in these activities. For example, an occasional skydive may result in a modest fee increase, while recreational skydivers who jump more than 50 times per year can expect substantial increases in their life insurance coverage expenses.

It is also worth noting that some insurance companies specialize in providing coverage for high-risk individuals, and working with an independent agent or broker can help you find the best options for your specific circumstances.

Lifestyle factors

Health and Medical History

Your personal health and medical history are crucial factors in the life insurance underwriting process. The healthier you are, the more favourable your insurance rates and coverage will be. Insurers will consider various aspects of your health, including weight, blood pressure, cholesterol levels, mental health, and any persistent medical conditions. They may also require a medical exam to assess your vital metrics, such as height, weight, blood pressure, and cholesterol.

Family Medical History

Insurers will also evaluate your family's medical history, particularly illnesses like diabetes, heart disease, and cancer. This information helps them understand your potential risk factors over time, as many diseases have a hereditary component. In some cases, a family history of certain illnesses may increase your premiums or impact your eligibility for coverage.

Occupation and Hobbies

Your occupation and hobbies can significantly influence your life insurance rates. If you work in a hazardous job, such as active military, law enforcement, firefighting, or construction, you may face higher premiums. Similarly, engaging in risky hobbies, such as skydiving, mountain climbing, or racing cars, will be considered in the underwriting process. Insurers view these activities as increasing the likelihood of accidental death or injury, which affects your insurability and premiums.

Driving Record

Your driving record is another essential lifestyle factor. A history of DUIs, reckless driving convictions, or multiple speeding infractions can lead to higher insurance rates or even denial of coverage. However, if it has been a few years since your last accident or infraction, your driving record may carry less weight in the underwriting decision.

Criminal Record

A criminal record can also impact your life insurance eligibility and premiums. It indicates a tendency towards riskier behaviour and may suggest potential health issues due to incarceration. The type and severity of the crime, as well as the time passed since the conviction, will be considered in the underwriting process.

Financial History

Your financial history, including credit attributes and bankruptcies, can be a factor in determining your life insurance rates. Insurers may view bankruptcies and poor credit as indicators of poor decision-making or potential medical problems. Additionally, a poor financial history could raise concerns about fraudulent policy activity.

While lifestyle factors are essential, it's worth noting that other factors beyond your control, such as age and gender, also play a significant role in determining your life insurance premiums and eligibility.

Financial considerations

There are several financial considerations to keep in mind when it comes to life insurance and the possibility of rejection. Firstly, it's important to understand that life insurance companies assess your risk profile when considering your application. This includes evaluating your financial situation, such as your income and net worth, in relation to the amount of coverage you are seeking. If the death benefit you are applying for far exceeds your financial worth, your application may be rejected.

Another financial consideration is your ability to pay premiums regularly and on time. Life insurance policies require premium payments to remain active. Failing to make these payments or making them irregularly can lead to a lapse in your policy, resulting in a potential rejection of any future claims. Most insurance companies provide a grace period for late payments, but it's crucial to stay on top of your finances to ensure your policy remains in force.

Additionally, certain financial behaviours or history can impact your application. For instance, a less-than-ideal financial history, such as bankruptcy or an unstable financial situation, may be a red flag for insurers. They may view you as a higher risk applicant and could reject your application or offer a higher premium. Similarly, if you have a history of DUIs, speeding tickets, or other driving infractions, it can affect your application negatively. Insurers may consider you more likely to be involved in an accident, increasing their potential payout.

It's also worth noting that some insurers may reject your application if you have a history of drug or alcohol abuse, especially when coupled with other risk factors. This is because insurers assess your overall risk profile, and these behaviours can indicate a higher risk of health issues or accidents.

In terms of financial considerations when dealing with a rejection, it's important to understand your rights and options. You have the right to appeal a rejection and provide additional information or corrections to your application. Working with a financial professional or an independent insurance agent can be beneficial in navigating this process and improving your chances of approval. They can assist in identifying insurers that are more likely to accept your application and guide you through the necessary steps.

Furthermore, financial considerations may also include exploring alternative insurance options. For example, you could look into simplified issue life insurance or guaranteed issue life insurance, which have looser acceptance criteria but typically come with higher premiums and lower coverage limits. These options may be more feasible if your financial situation doesn't meet the stringent requirements of traditional life insurance.

Lastly, it's worth noting that your financial situation may change over time, and it's beneficial to review and update your life insurance policy accordingly. Life insurance is not a static product, and your coverage should evolve with your life circumstances, including any changes in your financial status.

Age and life expectancy

Young adults are often in good health and may only need a minimum amount of coverage, which might translate to lower rates. Many individuals will find that a term life insurance policy offers adequate coverage for their needs and budget. Young families often purchase term life insurance because it’s a more affordable option at a time when they’re typically the most financially vulnerable. For instance, young adults might be raising children, paying off mortgages, or trying to save for retirement.

Taking the example of a 35-year-old couple with a five-year-old child, they might consider purchasing term life insurance policies with $500,000 in coverage over a 30-year term. This may help provide a financial cushion for the surviving spouse and child if one policyholder passes away. The death benefit could be used to help pay the mortgage, replace the lost spouse’s income, and cover the child’s educational expenses. In most cases, life insurance policies for young adults are based on what fits the budget and covers immediate outstanding financial concerns, such as debts and loans.

As people age, they often benefit from a term life insurance policy that is in effect until they hit retirement. For instance, instead of purchasing a 30-year policy, a middle-aged adult might purchase a 10-year policy if they’re only a decade out from retiring.

If you’re planning on providing a financial cushion for your loved ones, you might consider purchasing a small permanent policy. A $50,000 to $100,000 permanent policy offers long-term financial protection for as long as the premiums are paid. The payout is likely guaranteed, so your beneficiaries could use the funds to pay down debts, pay for your end-of-life expenses, or keep the funds as a financial gift.

A larger permanent policy could protect your resources if you have a bigger estate. In many cases, the policy could generate cash value that might be valuable in retirement. The death benefit on a larger policy could also help your loved ones. For example, a death benefit could provide an inheritance or pay estate taxes.

Older adults might have a harder time purchasing life insurance. In fact, many insurers stop issuing new life insurance policies to seniors over a certain age — usually around 80. Life insurance for seniors can often be cost-prohibitive depending on their health and the type of coverage they qualify for.

Of the life insurance products available, a guaranteed life insurance policy might be one of the only options a senior can qualify for. With guaranteed life insurance, no medical exam or health questionnaire is required, and approval is guaranteed. However, these policies can be expensive and usually have a death benefit cap of around $25,000. Read through policies carefully since they typically come with a graded death benefit period of two years. You might also do the math to find that the cost of the policy isn’t worth the death benefit it provides.

Overall, age and life expectancy are key factors in determining life insurance premiums. The older the applicant, the higher the premium, as insurers factor in the increased likelihood of a death benefit claim. Life insurance needs also change with age, with older individuals often requiring larger policies that last longer.

Frequently asked questions