Life Insurance And Depression: What's The Deal?

Life insurance is a way to protect your loved ones from financial hardship in your absence. Mental illness can make this harder to do, but it is still possible to find a policy that works for your needs. Mental illness is not uncommon, with around one in five adults experiencing mental health issues each year. While it is possible that an insurer may turn you down for coverage, there are other options to consider, such as guaranteed issue life insurance, which is available to most people within a certain age bracket regardless of their health issues. It is also worth noting that insurers are not allowed to deny you coverage based solely on a mental health diagnosis. They will, however, take into account the frequency, severity, treatment, and specific diagnosis when determining your premium.

Life insurance companies' definition of depression

Life insurance companies consider depression a pre-existing health condition if and only if you've been diagnosed by a medical professional prior to your application.

Depression can be diagnosed in many forms, including seasonal defective disorder, persistent depressive disorder, and major depression. Life insurance companies differentiate between people with depression into the following three categories:

• Mild depression – up to one type of medication and no history of hospitalizations
• Moderate depression – those who take more than one medication and consult a psychiatrist
• Severe depression – those who have suicidal ideation or attempted suicide in the past

Postpartum depression is also a form of depression that commonly occurs within the first three months of having a baby. It eventually dissipates, but some insurers still treat it like clinical depression, which can mean a higher insurance premium.

Factors that affect insurance eligibility and rates

People with depression can get life insurance, but several factors affect their eligibility and the rates they are offered. Firstly, the type of depression and its severity are crucial factors. Mild depression, which involves taking up to one type of medication and no history of hospitalisation, is generally considered less risky by insurers than moderate or severe depression. Moderate depression is characterised by the use of multiple medications and consultations with a psychiatrist, while severe depression involves suicidal ideation or attempts. The frequency and regularity of symptoms, as well as any recent improvements or worsening, are also considered.

Secondly, treatment methods and their effectiveness are important. Life insurance companies look favourably upon consistent treatment plans, steady employment, and a stable condition. They prefer applicants who are on fewer medications and have a medication plan without frequent changes. Seeing a psychiatrist can be indicative of a more serious case of depression and may result in higher premiums. However, it is still important to disclose any mental health diagnosis, as concealing it may result in the policy being invalidated.

Thirdly, insurers consider the impact of depression on an applicant's daily life and overall health. They assess whether the condition affects daily activities and the ability to work, as well as any related health issues, such as drug or alcohol misuse, cardiovascular disease, or panic attacks. A history of suicide attempts or hospitalisations due to depression will also affect eligibility and rates.

Lastly, the insurance company's policies and algorithms play a role. Each company weighs mental health factors differently, so it is beneficial to shop around and work with an independent broker who can match the applicant to the most suitable insurer.

Types of life insurance

There are several types of life insurance policies available, and they can be broadly categorized into two types: term plans and permanent plans. Here is a detailed overview of the different types of life insurance:

Term Life Insurance

Term life insurance provides coverage for a specific number of years, usually between 10 and 30 years. It is designed for those who need coverage for a certain period, such as during their prime working years. Term life insurance is generally more affordable than permanent life insurance, and the premiums are locked in for the specified duration. If the insured person dies during the term, the beneficiaries receive the death benefit. However, if the policyholder outlives the term, no benefit is payable, and the policy lapses without any cash value. Term life insurance can be further categorized into:

• Renewable Term: This type of policy gives the policyholder the right to renew for another period when the term ends, regardless of their health condition. The premium increases with each renewal.
• Convertible Term: Convertible term policies allow the policyholder to exchange the policy for a permanent plan during a specified conversion period, without providing any health information.
• Level or Decreasing Term: Under a level term policy, the death benefit remains the same throughout the term, while decreasing term policies have a death benefit that reduces over time, even as the premium stays the same.
• Adjustable Premium: Insurers can change the premiums in the future, but they cannot exceed the maximum guaranteed premium stated in the policy.

Permanent Life Insurance (Whole Life Insurance)

Permanent life insurance, also known as whole life insurance, is designed to provide coverage for the policyholder's entire lifetime. The premium rates are levelled, and the excess premium builds a reserve (cash value) to help pay for the policy in later years as the cost of protection rises. Whole life policies stretch the cost of insurance over a longer period to level out the increasing cost of insurance. Permanent life insurance can be further categorized into:

• Non-Participating Whole Life: This type of policy provides a level premium and face amount during the policyholder's lifetime, with fixed costs and generally low premium payments. However, it does not pay any dividends.
• Participating Whole Life: This policy pays dividends, which represent the favourable experience of the insurance company, resulting from excess investment earnings and favourable mortality and expense savings. Dividends can be paid in cash, used to reduce premiums, or left to accumulate interest.
• Indeterminate Premium Whole Life: This policy is similar to non-participating whole life, but it provides adjustable premiums based on the insurance company's current estimates of investment earnings, mortality, and expense costs.
• Limited Payment Whole Life: This type of policy offers lifetime protection but requires only a limited number of premium payments, which are higher than those under a whole life plan.
• Single Premium Whole Life: This is a limited payment whole life policy where a single large premium payment is made upfront, and no further premiums are required.
• Interest Sensitive Whole Life: This type of policy allocates investment earnings differently to reflect current fluctuations in interest rates. Improvements in interest rates will be reflected in the policy, but decreases will also be felt.
• Universal Life: Universal life insurance treats the premium, death benefit, and cash value elements of the policy separately, offering more flexibility. Policyholders can change or skip premium payments or adjust the death benefit more easily.
• Excess Interest Whole Life: This is a fixed-premium version of interest-sensitive whole life, where any additional interest credited or better life insurance experience will improve the cash value of the policy.
• Current Assumption Whole Life: The insurance company determines the premium amount based on its current estimates of future investment earnings and mortality experience, retaining the right to reevaluate and adjust premium payments later.

Guaranteed Issue Life Insurance

Guaranteed issue life insurance does not require any health questionnaires or medical exams. Approval is guaranteed as long as the applicant meets the age requirements, typically between 50 and 80 years. However, the death benefits are usually capped at a lower amount, and there may be a waiting period before beneficiaries are eligible for the full death benefit.

Group Life Insurance

Group life insurance is often offered by employers as part of their benefits package. It is generally inexpensive and easy to obtain, without any medical underwriting. The policy remains active as long as the policyholder maintains employment with the company.

Burial Insurance or Final Expense Insurance

Also known as final expense insurance, burial insurance is a type of whole life insurance with a smaller death benefit designed to cover end-of-life expenses, such as funeral costs and outstanding medical bills. A medical exam is usually not required, making it more accessible to seniors with pre-existing health conditions.

How to prepare for the application process

• Follow your doctor's guidance on medication: Adhere to the prescribed medication and dosage instructions from your doctor. Deviating from the prescribed treatment plan may result in higher premiums as the insurance company may consider your condition as untreated.
• Be ready to disclose medication details: During the application process, you will likely be asked about the names, dosages, and frequency of any medications you are taking as part of your treatment.
• Disclose any other treatments and hospitalizations: Inform the insurance company about any past or current hospitalizations, as well as any other treatments you have received for your mental health condition. Life insurance companies may postpone your application for at least a year in the event of a recent hospitalization.
• Be honest about your mental health diagnosis: It is crucial to be transparent and disclose any mental health diagnoses. Failing to do so may result in serious consequences, such as application rejection, higher premiums, or policy cancellation.
• Be prepared for a medical exam: Depending on your condition and medical history, the insurance company may require you to undergo a medical exam, similar to an annual check-up, which will be covered by the insurer.
• Provide detailed information: Share as much information as possible about your diagnosis, treatment history, and overall medical history. This helps the insurance company accurately assess your application and determine your premiums.

What happens if you lie on your application

Lying on your life insurance application is considered insurance fraud and can lead to serious consequences, including policy cancellation, claim denial, or difficulty securing insurance elsewhere.

Verification Process

Insurance companies are aware that people may lie on their applications, so they undertake a meticulous verification process before issuing coverage. This typically includes a medical exam, reviewing your medical, prescription, and motor vehicle records, and comparing your application against these records to identify any discrepancies that could indicate fraud.

Lies Detected During the Application Process

If a lie is discovered during the application process, the insurance company may immediately decline coverage. The incident will also be logged in the Medical Information Bureau (MIB) database, which other insurance companies can access. As life insurance providers routinely check the MIB before issuing a policy, having a record of lying on insurance applications will make it more difficult and expensive to obtain coverage elsewhere.

Lies Detected After Coverage Is Issued

Life insurance policies typically include a two-year contestability period, during which the insurance company can cancel coverage if material misrepresentation is discovered. If the insured person dies within this period, the company will investigate to ensure no fraud was committed during the underwriting process, even if the lie was unrelated to the cause of death. The insurer may then decide to cancel the policy, resulting in no payout to the beneficiaries, or they may choose to subtract the difference in premiums from the death benefit.

What to Do if You Make a Mistake

If you make an honest mistake on your application, such as forgetting a prescription from many years ago, it is unlikely to be considered insurance fraud. However, intentionally misrepresenting yourself, your medical history, or any pre-existing conditions is considered fraud and can have significant repercussions.

Frequently asked questions