Archive for August, 2008
With the best of intentions (usually) people often try to arrange life insurance policies that lack on critical component with the insurance companies, insurable interest. Insurable interest quantifies the actual financial loss a beneficiary would incur upon the death of the insured.
This often strikes a nerve when I explain to a person that, no, you can’t take out an insurance policy on your mother with you as the beneficiary in the amount of $250,000 and explain to the insurance company that it is for burial. No, mom doesn’t own a house with a mortgage. No, she doesn’t have any debt. So, wonders the insurance company, after you bury your mom in the highest of fashion, what are your intentions for the other $240,000? This is seen as an attempt to over insure your mom and unless mortality experience has changed recently, there used to be a measurable difference in mortality rates between the adequately and the over insured.
The parent thing is probably the most frequent challenge to the insurable interest issue, but there are plenty of other examples. So, you want to take out $500,000 and make your friend the beneficiary. The company wants to know why the friend should be the beneficiary of half a million dollars and your answer is because you can afford to buy it and you think it would be nice to do.
First, let’s dispel with the old fashioned notion that if you can afford it you should be able to buy it. Insurance companies are not in the business of creating wealth where there was none. They are in the business of replacing losses. Now, if you owe your friend $500,000 and want to take out a policy so that if you die they still get paid, that is legitimate insurable interest. There is a loss to your friend upon your death. By the way, don’t try that avenue unless you can actually prove there is a loan.
Bottom line. Think it through ahead of time. Just like financial justification would preclude someone making $10,000 a year from owning $1,000,000 worth of life insurance, companies look at insurable interest to make sure they’re not selling policies that create wealth rather than replace losses.
August 28th, 2008
I feel like a myth buster today. I was speaking with a woman today who made it very clear that she didn’t want to apply for life insurance if there was a chance she would be declined. Here reason is that life insurance applications ask if you’ve ever been rated or declined for life insurance before, and a logical person would assume that the question, if answered in the affirmative, would simply lead to another decline.
So let’s bust that myth. Yes, they do ask the question as part of their information gathering process, but if the decline was due to a difference in the underwriting guidelines between the new company and the declining company, there will likely be a different outcome. To further insulate you from that question, the new company you are applying with will look at you based on the merits of your exam with them, your medical records as interpreted by them and how all of that information fits within their underwriting guidelines.
There are plenty of companies out there who ask us agents to bring rated and declined cases to them for a fresh look. The truth is that there is an ocean of difference in how health issues are perceived from company to company, and sometimes there are fairly significant differences from one underwriter to the next within a company. A decline is not a black ball in the life insurance business.
Those of us who have staked our territory in the impaired risk business (anyone who doesn’t have a perfect health history) have studied long and hard to know what to do with your decline. We don’t get paid unless we succeed, so we aren’t going to fluff you up and provide quotes we don’t honestly believe we can come through with.
We also make our customers work harder than the average agent. If you’ve been declined, it will be a team effort that turns that around. We may ask you to get us a copy of your last stress test if you have heart disease or another heart problem like arrhythmia. We might ask you to get a copy of your pathology report if you’ve had cancer. Any agent that understands diabetes will ask for your last set of labs if you’ve been declined.
We want to succeed and being armed with all the information available is the best way to do it.
Bottom line. A decline is not an industry statement. It is the opinion of one underwriter and medical director in one company. Don’t hide because of past declines and don’t fear being declined. A decline may be just what it takes to get you headed in the right direction. I would be remiss if I didn’t throw my stander disclaimer out there. Don’t take your decline to your local auto and homeowners agent unless you are fond of rejection. You need to enlist an independent agent and they should be able to explain to you exactly how they will succeed where others have failed.
August 27th, 2008
I’ve often discussed the role that build charts play in the underwriting of life insurance. From an insurance point of view it’s as simple as this, trim is good and overweight is bad. Trim gets the best rates and overweight doesn’t.
For the purpose of this discussion we are talking about overweight as defined by the body mass index (BMI). We are not talking about the difference between a healthy weight according to the BMI versus obesity according to the BMI. So the question is does fitness compensate for fatness (overweight). A recent Harvard publication sheds a little different light on this question than may have been considered by underwriters in the past. Having said that it’s also important to remember that life insurance companies truly can’t afford to unravel every subtle difference between one insured and another. More on that in a minute.
So, the question in a little more detail is, from a long term health perspective, is slim but not fit better than overweight but fit? Let’s define fit as someone who exercises 30 minutes a day even if it’s just moderate exercise such as walking. Remember again, we are not talking about obesity. Obesity and especially morbid obesity by the very nature of the amount of extra weight make fitness a difficult if not impossible task without weight loss.
The findings of a 1998 study of 22,000 men, cited in the Harvard article, found that fit really did trump fat to some degree. In other words being thin and out of shape wasn’t better than being overweight and in shape. Their findings were summed up like this, “After eight years of follow-up, 428 of the men had died. Those who were overweight but deemed physically fit by their performance on the treadmill test were half as likely to have died as men who were lean but not fit. What’s more, death rates were virtually the same among fit overweight men and fit lean men.”
So, back to the underwriting dilemma I referred to above. Even though it seems obvious that the level of fitness is just as important, if not more important, than weight, the problem comes in finding an inexpensive way to measure fitness or assume fitness in the underwriting process. In the study all of the men’s fitness was measured by their performance on a treadmill stress test. Insurance companies underwriting costs right now very seldom leave room for insurance company profit for 3-5 years. A treadmill stress test would more than quadruple the cost of the average life insurance exam effectively making it unprofitable to provide. If it doesn’t make a profit, on average, a company can’t do it. And for all of you who just booed the life insurance companies making a profit, remember that they are the companies that are going to be cutting check for hundreds of thousands or millions of dollars to your beneficiaries. You want them to be profitable.
Having said all of that, there is the occasional underwriter who can be swayed a rate class if evidence of fitness is provided by the proposed insured. If this attempt is made it generally needs to be with information from the person’s medical records, not from the manager of the gym they purport to go to. So, if your medical records happen to contain a recent treadmill stress test, bring it to your independent agent’s attention.
Bottom line. Being fit. Being in shape from a cardiovascular standpoint will trump weight if you are concerned about your own health and your own longevity. For practical purposes it would probably be prudent not to go into the purchasing of life insurance assuming that your fit and fat argument will win the day.
August 26th, 2008
Occasionally when I am doing an interview to determine what rate class a person will fall into and what company will be best for them, I am asked if they will look less critically at the health issues if they ask for a smaller amount.
This often comes as questions like, “What if I apply for two $250,000 policies with separate companies instead of $500,000 with one company?” The thinking, and it has some logic to it, is that if a company is exposed to less risk maybe they won’t look at the health history or another issue as critically. That could end up with this logic, rather than a large policy approved at a standard rate, two smaller policies might be approved at preferred rates.
Unfortunately for the life insurance shopper underwriting doesn’t work that way. The truth is that while a company may do more tests and more intensive scrutiny of medical records at higher amounts, if a person has elevated liver function, high cholesterol or problematic family history, the company will award the same rate class whether the face amount is $100,000 or $10,000,000. If that weren’t the case then everyone with health issues would be buying multiple small policies rather than the amount they need in one policy.
I mentioned that the underwriting requirements do get more stringent at higher amounts. Here is a standard table of requirements starting with A being children under 18 at lower face amounts to H, I, and J where the requirements are for older ages and high face amounts. Actually they aren’t in exact order as A, B and E are for applicants under age 18. Note that none of them require a full blood draw.
A Non-Medical
B Paramed, Urinalysis, Attending Physician Statement
C Paramed, Urinalysis, Blood Profile
D Paramed, Urinalysis, Blood Profile, EKG
E Paramed, Urinalysis, Attending Physician Statement, Dried Blood Spot
F Paramed, Urinalysis, Attending Physician Statement, Blood Profile, EKG
G Urinalysis, Blood Profile, EKG, Physician Exam
H Urinalysis, Attending Physician Statement, Blood Profile, Physician Exam, Treadmill EKG
I Urinalysis, Blood Profile, Physician Exam, Treadmill EKG
J Urinalysis, Attending Physician Statement, Blood Profile, Physician Exam
Bottom line. While the up front requirements may differ, the results are all measured the same. Again, high blood pressure is high blood pressure whether the applicant wants a modest amount of insurance or tens of millions.
August 25th, 2008
For other reasons than the flurry of life insurance related exchanges with the Zander Insurance Group last week, I was almost crushed by my own lack of humility and my own pridefulness.
When I left church on Sunday, as so often happens, I had heard the word of God and it seemed to be aimed straight at me. I had somehow allowed myself to let my pride take over ownership of God’s gifts and along the way I had shelved my once humble self.
After much prayer I want this morning to apologize to Mr Zander and to Dave Ramsey for boasting to whomever would listen that Zander was wrong in it’s approach to quoting life insurance while I was of course, right. I was arrogant and prideful and far from humble, all things that the God I serve demands of us.
I apologize for insinuating that Zander Insurance isn’t doing what they believe is right. I apologize for insinurating that they don’t do a good job for their clients and I apologize for my arrogance through the whole exchange. Our businesses are not right and wrong. They are simply different and I ask for forgiveness for my attitude. It won’t happen again.
Bottom line. God tests us and so often we fail. In the course of that failure we often hurt people we know and love and people who just happen to be in the way. My Lord Jesus has promised to accept repentance and admission of sin as a new start. I pray that from this day forward I will truly have the heart of a humble servant and not allow my own pride to take ownership of God’s blessings.
August 25th, 2008
I doubt there are any of us who have not been through some period of situational depression and while depression can come in many colors and sizes, I think it is important to define it and talk about it in the context of life insurance.
Common causes of situational depression are the loss of a loved one, marriage problems, illness, problems at work and for some just the realization that you are getting older. The thing that distinguishes situational depression from chronic depression or severe depression is 1. the cause and 2. the length of problem. Generally with situational depression, getting help and time combine to make the length of the depression issue relatively short. Depending on the cause, it might last from just a few months to generally not more than a few years.
Underwriters are generally compassionate in this area as long as the depression is not severe enough to require hospitalization or impacts a person’s ability to function, such as lost time from work while being treated. Many companies will offer as good as preferred and occasionally preferred plus rates for well controlled situational depression.
Chronic depression differs in that many times there is no discernible cause and generally it is a problem for a longer time, if not for the rest of a person’s life. While a situation or event may have initially triggered the need for treatment, the never ending nature of the problem requires a different view from an underwriter. Again, if well controlled (no hospitalization or lost time), underwriters will likely see their way to better than standard rates and occasionally as good as preferred, although preferred would definitely be the exception.
Severe depression is usually a bit of a mine field for underwriters. The fact that it is labeled severe generally means that it is or has impacted the stability of life and often requires stronger medications or multiple medications. Severe depression often impacts a person’s job performance or ability to even hold a job. It may mean occasional hospitalization. It can include suicidal thoughts or even attempts.
In the absence of job impact, hospitalization or any suicidal ideations, underwriters will most often look at severe depression in the standard to slightly sub standard rate classes. If the depression has taken control of your life, in all likelihood the result will be a declined application for life insurance.
Bottom line. A good independent agent with access to all of the top companies is imperative when shopping for life insurance with any level of treated depression. This is not the time to run down to your auto insurance agent.
August 22nd, 2008
If asked, most people would say that life insurance doesn’t cover death due to suicide and they would certainly have logic on their side. After all, what sense does it make that someone can buy large amounts of life insurance for pennies on the death benefit dollar, do themselves in, and their family still receives the money. Doesn’t sound like a sound business model to me.
But, with the exception of the two year suicide clause, that is exactly what will happen. The protection for the insurance companies lies in the fact that they most certainly don’t have to pay if someone takes out a policy and immediately goes out and takes their life. They also have in their favor that it is highly unlikely that a person will take out a policy with suicidal intentions and have the mental stability to wait it out for two years. So, for the first two years there is no benefit payable for suicide. During that period the company would return the premium paid, but nothing else.
The reason I bring this whole subject up is that the misconception can lead to families not even filing a claim if a loved one commits suicide. Their gut, as I mentioned, tells them that the claim would logically not be paid, so why even file it? Sometimes they drag their feet because they don’t think it will be paid and the policy will lapse.
Virtually all policies have the same clause, controlled by state law. A typical policy would have this wording: “Suicide. The benefits payable are limited if the insured commits suicide, while sane or insane, within two years of the issue date. In such case our liability will be limited to a return of all premiums paid to us.”
Bottom line. How often do we hear of a middle age breadwinner who for whatever reason, takes their life? If they had life insurance in force, the family should file a claim right away. If they just aren’t sure, they should call the company or consult an agent or an attorney to review the policy.
August 21st, 2008
Virtually all life insurance companies take your immediate family health history into consideration at some level. They don’t all view it the same and they certainly don’t all treat it the same, but it is in their guidelines and they seldom waiver.
This probably ticks people off far more than finding out something is wrong with their own health picture such as having high cholesterol on the life insurance exam or perhaps high blood pressure. Probably one of the toughest for a client to swallow is when a company penalizes them because a parent who smoked dies prior to age 60 of lung cancer when the client, having watched that whole scene, has never touched a cigarette. Another that is just about as tough a pill is when their rate is effected because their father died of a heart attack at age 48 after drinking, smoking and eating their way into the obesity hall of fame when they don’t smoke, don’t drink and exercise regularly.
So, is it fair? Well, the way I see that is if it happens to me, then no, but if I’m a life insurance underwriter, then yes. I have discussed this at length with underwriters and they understand that taking a black and white stance on family history will be unfair to some. But, any underwriting guideline that is black and white and produces the same result for a rate class for everyone, is going to be unfair to some.
Just a few examples of the latter and then back to family history. All companies use build charts and approve rates based on your build. They know that plenty of people who are 5′10, 250# live to ripe old ages, but they also know that at that weight the chances are much greater of having diabetes, heart disease and cancer. All companies test for cholesterol and approve rates that reflect your cholesterol numbers. They know that plenty of people with high cholesterol never develop heart disease or have heart attacks, but they know that the chances are greater of that happening if you have high cholesterol.
So, family history. Even though your father appeared to have done himself in by smoking, drinking and eating doesn’t mean that you are not genetically predisposed to heart disease. And just because you don’t smoke like your parent who died from lung cancer doesn’t mean that you aren’t genetically predisposed to cancer.
The good news is that, as I mentioned up front, not all companies share the same beliefs, and a good independent agent can usually find a company that will take most of the sting, if not all of it, out of any family history issues.
Bottom line. Rather than taking offense or trying to justify family history, ask your agent how they can take what you have and make it work for you.
August 20th, 2008
I think I’ve made my position pretty clear when it comes to where the best values on life insurance can be found and the fact that your local auto and homeowners agency is not that place. I feel the need to expound today.
You see advertisements all the time with the lead “save up to 70% on your life insurance”. That would be great if you knew that you could really find those kind of savings. Seems like one those just a little too good to be true things, doesn’t it? Well, if you have your life insurance through Farm Bureau, based on the last several cases we have written to replace their product, it appears that you are paying over 100% more than you need to.
Their hook is of course that they will offer you a discount on the auto or homeowners. As a consumer I often question why, if they can offer a discount, shouldn’t they just sell the auto and homeowners at better prices to start with. And then they offer you a discount because you have turned around and purchased another grossly overpriced product from them. This can only be construed as a win/win situation if you want Farm Bureau to be both winners.
I know I always look at these kind of numbers skeptically, so be skeptical. These are the results of some very recent Farm Bureau replacements. A Florida executive with health issues had $1,000,000 of 20 year term insurance with Farm Bureau for $12,000+ per year. His rate with West Coast Life is $6085.00. His wife had the same amount with Farm Bureau for just over $3000 per year and is now paying $1005.00 through Western Reserve. Some young friends of mine with two young children had $100,000 of 10 year each through Farm Bureau which was running $54 per month. They now have $250,000 of 20 year term each with Banner for a total of $31 per month.
Bottom line. What is Farm Bureau thinking? I may be wrong, but I think that they think they will make a huge profit if they can find people to buy their overpriced life insurance. Don’t fall for that discount nonsense. If they can afford to discount their auto and homeowners, rest assured that it is for sale somewhere else, straight up, at that discounted price. Seek out an independent agent today.
August 19th, 2008
WE have been blessed with great success in getting good, competitive life insurance rates for those with bipolar disorder and really had another success on the way, but the client derailed it. Fortunately this is a rare situation because, frankly, working as hard as we do to get good rates where good rates are not easily available really requires the full cooperation of the client. It is a team effort.
I won’t dwell on this particular case but I do want to point out one sure way to nuke your chances of getting the rates you want. In this case there were a few notes in the records that the underwriter wanted clarification on. Most underwriters don’t ask for clarification, but rather put a worst case connotation on the notes and make an offer based on that. This underwriter did make that offer, but said they would consider a better offer, the rate class originally quoted, if the client got a letter of clarification from the doctor. The client refused.
This action meant there was no chance for the better than standard rates originally quoted. And the client refused to accept the other offer which, by the way, was $1000 a year under the offer I was tasked with beating. Ok, no dwelling!!
This still doesn’t change the fact that we have been very successful in placing affordable life insurance for those with well controlled bipolar disorder. Just a quick review of the points that underwriters look for in order to qualify for those rates.
1. No suicide attempts
2. No hospitalization for bipolar in the last 10 years other than for the purpose of diagnosis.
3. Compliant with treatment. No taking meds when you feel bipolar and slacking when you don’t.
4. Stable work history. You can’t be on disability for bipolar. That is not a stable work history.
5. Stable family/social life.
6. No alcohol abuse.
7. Cooperate with the underwriter in clarifying any information they ask about.
Bottom line. The rates are there. The underwriters are willing to approve them, but keep in mind that they represent companies that are putting hundreds of thousands, if not millions of dollars of life insurance on you. They certainly have the right to ask whatever questions they want in order to make sure they are not subjecting the company to an adverse risk.
August 19th, 2008
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