It’s getting easier for clients with pre-existing medical conditions to get life insurance coverage today. Even those with cancer, heart disease and diabetes can qualify for “impaired risk,” or substandard-rated coverage. That’s due to technological and medical underwriting advances, as well as better patient treatment plans.
Of course buying an impaired risk policy still isn’t cheap. Depending on the insured’s age, occupation and medical condition, premiums can be 50 percent to 350 percent higher than life insurance for an individual in good health.
Over the past three years, sales of impaired-risk coverage have risen 20 percent. The latest LIMRA data, from 2009, show that 6 percent of life insurance policies sold were substandard-rated. That’s up from 5 percent in 2007. While that is a small increase, it represents a positive trend toward greater sales of life insurance to people with health problems.
“Now we have greater information, based on how people are controlling their diseases,” says Shelby Hollister, vice president and chief underwriter with MassMutual, Springfield, Mass. Hollister adds that her company recently has updated underwriting guidelines for different forms of cancer, heart conditions, hypertension and anxiety.
A number of factors come into play when life insurers address disease, including the type of disease and its severity, as well as the age and documented lifestyle habits of the applicant. Diet, exercise, tobacco usage, regular health checkups and compliance with a doctor’s orders are major underwriting factors that determine approval of coverage.
In some cases, Hollister says, people can get life insurance as soon as six months after diabetes is controlled, or after recovery from heart bypass surgery, angioplasty, or the use of stents.
Susan Mancione, director at Life Quotes Inc., Darien, Ill., an insurance broker, says people with a ratable health condition should always obtain a letter from a doctor to attach to the insurance application. The letter must describe the person’s history, current medications and an assessment of the patient’s physical outlook. Attaching this letter at the outset helps reduce uncertainty.
Once the application is submitted, Mancione says it can take up to 60 days to complete the process, sometimes even longer if medical records must be retrieved from numerous doctors. Next, the life insurance company will closely review answers the applicant gave to the paramedical examiner. It will also access third-party prescription drug databases, check out the client with the Medical Information Bureau, or MIB, and possibly conduct a separate telephone interview with your client.
"What life underwriters look for most in an applicant with ratable conditions is whether the condition is stable and improving or getting worse,” Mancione says. “Applicants over age 50 should show a history of regular checkups. Many life insurance companies require that a certain period pass, such as one to three years, from the onset of certain heart diseases and cancers."
Dan Cotter, director of risk management with Rehmann, a Cleveland, Ohio financial planning firm, says he is writing policies for people with heart problems, cancer and diabetes that he could not write 10 years ago.
“A decade ago, someone who had a heart disorder with three stents and an angioplasty had to wait six years before they could be considered for life insurance,” Cotter says. ”Now they are being insured due to sophisticated underwriting that has grown tremendously over the past five years.”
Another financial planner, Adam Sherman, CEO of First Trust Financial Resources, Philadelphia, Pa., says he has helped younger clients get family coverage and older individuals purchase second-to-die coverage for estate planning.
“There are 15 to 25 insurers that specialize in different areas,” Sherman says. “Individuals are living longer. Testing is very advanced. So much information is flowing to underwriters that they can drill down and accept the risk.”
Sherman, however, says that not everyone with a serious illness can get life insurance coverage. If a client can’t get life insurance coverage, he says he may consider a variable annuity with a spousal lifetime guaranteed withdrawal benefit. A surviving spouse will typically get 5 percent of the annuity benefit base annually for as long as he or she lives.
An annuity with a long-term care insurance rider might also be an option. Policies typically pay out two-to-three times the account value for long-term care for up to six years.
Another option is a reversionary annuity--a policy that offers a predefined lifetime income death benefit rather than a lump sum benefit. When the policy owner dies, the beneficiary receives monthly income for as long as he or she lives. Typically, the policy comes with a return-of-premium rider. So if the beneficiaries die before the insured, premiums are returned.
Cotter, of Rehmann, says life insurance prices vary widely among competing companies. So advisors must shop around. Some insurers may offer better rates on different types of maladies.
The best way to shop for an impaired risk policy is to contact a brokerage general agency, a company that wholesales specialized life insurance coverage for clients. There are 350 brokerage general agents nationwide, according to the National Association of Life Brokerage Agencies (www.nailba.com), Fairfax, Va., a non-profit trade organization. Eighty-three percent of the agencies have at least one underwriter on staff to assist clients in finding the right type of policy based on medical condition.