Life Insurance: Reasons For Declination And What To Do

Life insurance is a financial safety net for families in the event of the policyholder's death. However, getting approved for life insurance can be challenging. Many applicants are denied coverage due to a variety of factors, including health issues, lifestyle choices, and financial history. Insurers use a process called underwriting to determine the risk of each applicant, and if they are deemed too risky, their application may be declined. This is often due to pre-existing conditions, obesity, high cholesterol, or hazardous hobbies. Additionally, non-medical reasons such as bankruptcy, criminal records, or a history of risky behaviour can also lead to a denial. Understanding these reasons is crucial for applicants to take proactive steps and increase their chances of approval.

High-risk health issues

Life insurance is all about assessing the risk of the insured person dying and leaving their loved ones unprotected. Thus, if an individual falls into a high-risk category, they may be denied life insurance coverage. This could be due to health challenges like diabetes, obesity, a previous diagnosis of serious disease, or even being underweight. For instance, high cholesterol, lipids, and triglycerides may lead to a higher risk of heart disease and stroke, and are thus reasons for denial of an application. Similarly, high blood glucose/sugar levels are often a precursor to diabetes and are therefore a bigger risk for insurers.

Additionally, certain high-risk jobs or hobbies may also be a reason for rejection. Occupations that require handling firearms, working at dangerous heights, or wearing heavy protective gear, are all examples of high-risk jobs that may lead to an application being denied. Similarly, dangerous hobbies such as skydiving or even smoking can be considered high-risk and impact the decision of the insurer.

It is important to note that each life insurance company has its own underwriting policies and guidelines to assess risk. Therefore, even if one insurer deems an individual as high-risk, another may not. In such cases, it is beneficial to consult an independent agent or financial advisor who can help find the best rates and coverage for high-risk individuals.

Non-medical reasons

Risky hobbies and behaviours

Insurance carriers may deny coverage if you engage in risky hobbies and behaviours, such as skydiving or base jumping. Carriers view such activities as high-risk factors that could potentially lead to accidental death or injury, increasing the likelihood of a claim being made.

Criminal record

A criminal record can also be a reason for life insurance decline. This is because a history of criminal activity may indicate a higher risk of future claims or suggest a level of instability or unpredictability. The nature and severity of the crimes will be taken into account, with more serious or recent offences carrying more weight in the assessment.

Financial history

A less-than-ideal financial history can also lead to a life insurance decline. Insurers may consider factors such as credit score, income stability, and debt-to-income ratio when assessing an application. A poor financial history could indicate a higher risk of non-payment of premiums or suggest financial instability, which may impact the policyholder's ability to maintain the policy over time.

Driving record

Multiple speeding tickets, driving under the influence (DUI) charges, or a history of accidents can also contribute to a life insurance decline. These factors indicate a higher risk of unsafe driving behaviour, which increases the likelihood of road accidents and, consequently, insurance claims. Insurers typically view such records as a sign of irresponsible behaviour and may deem the applicant as a higher risk to insure.

Hazardous occupation

Engaging in a hazardous occupation, such as roofing or other high-risk professions, can also lead to a life insurance decline. Insurers consider the level of danger associated with your occupation when assessing your application. If your job involves a significant level of risk, it may increase the chances of injury or accidental death, making it more difficult to obtain coverage.

It is important to note that the weightage given to each of these factors may vary across different insurance providers. If your application is declined, you have the right to appeal the decision and seek alternative coverage options from other insurers.

Misrepresentation or inaccurate information

Providing inaccurate information or misrepresenting yourself on a life insurance application can void the contract and lead to a claim denial. This includes lying about your current health status or conditions, as well as failing to disclose relevant information such as a previous heart attack.

Life insurance companies have to balance the risk they take on. If an insured person dies, they pay out a large sum 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 examine additional records, including prescription history, medical records, motor vehicle records, and financial and criminal history.

The Medical Information Bureau (MIB) provides life insurance companies with information about an applicant's health history, prescription medications, and the number of life insurance companies they have applied to. This helps protect insurance companies from applicants who are lying about their health status or conditions.

If your life insurance application is denied due to incorrect or insufficient information, you have the right to appeal the decision. You can improve your chances of a successful appeal by submitting timely and complete information, including up-to-date medical information from your doctor and recent credible information about your personal history, such as your credit report, driving record, and occupation.

Policy exclusions

Firstly, policy exclusions may occur due to the type of death. Life insurance policies outline the types of deaths that will result in a rejected claim. For example, deaths that occur during the commission of a felony, such as a bank robbery, will not be covered. Similarly, deaths caused by hazardous hobbies, like skydiving or scuba diving, may be excluded by the policy.

Secondly, policy exclusions may result from a policy lapse, where the insured individual fails to pay their premiums, leading to policy termination. Policyholders should be mindful of their premium payment schedule to avoid unexpected lapses.

Thirdly, misrepresenting oneself or providing inaccurate information on the insurance application can void the contract, leading to a denied claim. This includes withholding relevant medical information, such as a previous heart attack, or misrepresenting lifestyle choices like hazardous hobbies or high-risk behaviours.

Additionally, policy exclusions may arise from high-risk factors identified during the underwriting process. Underwriters assess the applicant's medical and non-medical risks, including prescription history, medical records, motor vehicle records, and financial and criminal history. If the applicant is deemed too risky due to factors like obesity, high cholesterol, serious medical conditions, hazardous jobs, or risky behaviours, the insurer may decline the application.

Lastly, policy exclusions can occur due to fraud and abuse. Life insurance companies may deny claims if they suspect fraud or abuse of the policy, such as misrepresenting oneself during the application process or providing inaccurate information.

Insufficient information

If your application is denied due to insufficient information, you have the right to appeal the decision. You can request information regarding the denial and confirm the results. You can also work with a financial professional or insurance agent to determine if a mistake was made on your application and to gain insight into why you were denied.

To have the best chance of winning your appeal, submit timely and complete information. This includes having your doctor provide up-to-date information from your medical file and submitting recent and credible information about your personal history, such as your credit report, driving record, and occupation.

If you have been denied coverage by one insurer, you can also apply with a different insurer as each insurer has different criteria for life insurance approvals. You can also look into alternative policy options, such as no exam policies, guaranteed issue (GI) life insurance, or final expense life insurance, which may have less stringent requirements.

Frequently asked questions