Posts filed under 'mortality risk'
If there is a common thread through the whole life insurance application/underwriting experience, it’s that those applying tend to underplay their mortality while feeling like underwriters really overplay the whole mortality thing.
Life insurance pricing and mortality risk evaluation is far from a perfect science. If it was “perfect” and absolutely fair to everyone, there would be more than four basic rate classes and eight subclasses (table rating). There would be maybe 100 rate classes and every conceivable health issue would be graded on a point system and your overall evaluation would lead to a specific rate that was custom just to you.
In this fantasy underwriting idea everyone would start at the worst rate class and deductions would be awarded for all of the underwriting categories that currently exist, height and weight, smoker or non smoker, cholesterol levels, blood pressure averages, liver functions, family history and so on. If a person was a perfect specimen and got a deduction for everything they would pay the equivalent of the best rate class now, preferred plus or preferred best.
But here’s where the difference would kick in. If a person only had one deduction out of all the categories, instead of the current system that would bump them one full rate class, they would only be bumped the appropriate mortality experience percentage relating to that one issue. For example, if I were in perfect health and wanted $250,000 of 20 year term I could get that for $955 a year. For the sake of my experiment here let’s say that the total cholesterol level for the best rate class had to be 220 or less and mine was 227. In today’s underwriting reality that would bump me to a preferred rate at $1104 a year, a 14% increase.
But what if, scientifically speaking, there was really only a 2% increase in mortality risk due to that elevated cholesterol? With my system I should then pay 2% above the best rate class, $974.10. I like it!
Bottom line. There is a mortality reality that we, as customers, don’t really want to admit to and there is an inherent unfairness in generalized underwriting rate classes that insurance companies don’t want to talk about, admit to or deal with. But, it is what it is for now and as long as life insurance companies keep rates as low as they are, even when we don’t get the best rate, we still get good rates and probably ought to cease whining.
March 5th, 2010
Understand that there isn’t anything I like about investor owned life insurance. Now matter how you sugar coat it someone or some institution with a profit margin has a vested interest, not in my life but in my death. That’s just creepy.
My nephew came to me yesterday and laid out the latest twist on the theme that he had just heard. It went something like this. If you’re 57-65 years old and have a convertible term life insurance policy (except with a few companies like AIG), you can sell the policy for all of the premiums that you have paid into it.
The policy ownership is then changed to an irrevocable life insurance trust. I suspect this move is to circumvent any family claims on the life insurance in the future. The policy is then converted by the trust into a permanent policy and becomes part of an investment portfolio.
It all feeds right into the American have your cake and eat it (or sell it) too mentality. “Why not get all that money back since I didn’t kick the bucket?” “After all, one guy said to me, what’s the difference between this kind of deal and return of premium term insurance?”
Well, huge difference! Return of premium term is a pre planned lapse of the term policy where the premiums can be returned because the company overcharged you all those years. When you sell your policy you get all the premiums back in return for giving up ownership and control of a life insurance policy on your life. That bears repeating. IN RETURN FOR GIVING UP OWNERSHIP AND CONTROL OF A LIFE INSURANCE POLICY ON YOUR LIFE.
People get all focused on the “free money” thing and I really don’t think they consider all of the implications of giving up ownership and control of something that could make someone else wealthy if you die. If you live too long it sucks for them. The shorter your life span the happier they are. The quicker you die the more they liked doing business with you. Your death is their nest egg. Your family’s loss is their family’s gain. You know what’s funny about all of those things? Nothing. They’re true and the whole idea of investment returns riding on mortality experience is just stinking sick.
Bottom line. If you want return of premium term insurance, buy it up front and don’t get mixed up in selling your life insurance to someone who may not love you.
February 3rd, 2010
I have often talked about the need, when you have health issues or a health history, to do your homework and make sure you find an independent life insurance agent who understands your health challenge and also understands what companies to go to and what companies to avoid.
Too often even experienced agents will focus on one, maybe two companies to run all of their business through. Their logic could be rewards (sales bonuses), or could be a higher commission level if they commit to just one company, or it could be that they have found a company that is easy for them to do business with and they are truly looking for the path of least resistance.
The problem with this approach is that even if you are dealing with perfectly healthy young clients, if you only have a few companies that you will use, or know how to use, in most cases you won’t be doing the best job possible for your clients.
The problem is enormously compounded when the people looking for life insurance fall into what the industry calls impaired risks. These are the clients with diabetes, heart disease, a history of cancer, depression, bipolar disorder and, well, you get the picture. These are the folks who given the wrong agent choosing the wrong company will end up declined for life insurance and have to start all over.
So, the right kind of agent is an independent agent. He or she will represent usually 20 or 30+ companies to make sure they have all health and lifestyle challenges covered. He or she will be an impaired risk agent. These, like me, choose to work almost exclusively on cases that most agents would prefer not to. We pick the ball up where the other agent left it declined. The other agents perceive these clients as too much work.
In a 2009 Agent Media, LIFE Foundation study noted in an article written by Heather Strickland in Agents Sales Journal, it was noted that in 2006 25% of life insurance agents said they offered impaired risk insurance. Keep in mind that offering and being good at providing impaired risk life insurance are not the same. If I had to venture a guess I would say maybe 20% of those that offered were really pretty good at what they did, so 5% of agents. In 2007 that number dropped to 16%, 2008 dropped to 13% and this year is on track for 11%.
From the inside looking out there is a logical reason for this shift. There used to be a company called US Financial that was just plain great at impaired risk business and agents that ran across the business could run it through them with a reasonable chance of success. They left the scene 3 years ago and suddenly you really needed to know what you were doing to succeed. You needed to be the right agent, with the right education and access to right companies. No more slam dunks. It became hard work for those who really didn’t know their way around the other companies that had always had good impaired risk niches.
So, the point being that if 11% of agents claim they “offer” impaired risk life insurance, and 20% of those are actually pretty good at it there are only 2 or 3% of agents out there that fit the “right agent” for the job category.
Bottom line. Make sure you ask a potential agent questions and make sure that agent is asking you questions specific to your health issue. If they don’t seem like they know what to ask or if they can’t answer your questions about how underwriters look at their mortality risk, look a little further. While being declined is not the end of the road in your quest for life insurance, it is also not the quickest route to a successful journey.
July 21st, 2009
Guilty as charged. I am one of those recovering saltaholics that grabs the salt shaker and tops off a meal before I’ve even taken a bite to see if it needs it. I love salt and although I am getting better about at least giving something a taste first, the truth is, well, I’m still recovering and fall off the wagon occasionally.
A high salt/low potassium diet is a pretty reliable ticket to the land of high blood pressure, stroke and some types of asthma. A topic of considerable attention lately has been the unbelievable amounts of sodium found in some of the most popular dishes in some of the most popular restaurants most of go to at least occasionally. Sometimes it seems to me that restaurants offerings are kind of self defeating. They make meals taste good by adding large amounts of salt and it often tastes so good that people are driven to eat every last bite, which unchecked leads to obesity.
Now perspective is a good thing. No reason to freak out if there really isn’t a reason, right? They (whoever they are) say that the maximum sodium intake for an adult should be about one teaspoon daily. I am an admitted saltaholic and if I were presented with a salt free day’s worth of meals, I doubt that I would add an entire teaspoon over the course of a day. That’s a lot of salt!
My downfall comes when I eat dinner out at a restaurant that knows two things for sure. 1. We, as a nation, love salt and want it on most everything we eat and 2. The more salt we eat the more beverages we tend to drink. Chili’s restaurants are one of the most consistent abusers of sodium out there. That one teaspoon is roughly equal to 2300 mg. Just a few of Chili’s sodium busting treats are their boneless buffalo chicken salad which sounds healthy but has 4400 mg of sodium, about twice what you should take in on a daily basis. Then there is their Southern Smokehouse Bacon Big Mouth Burger which tops the sodium scale at 4150 mg.
PF Changs has proven to be the king of salt. Their Hot and Sour Soup Bowl tips the scales at an amazing 6878 mg. 3 times the daily recommended maximum in one bowl of soup. I’m wondering if that soup really, really tastes bad and they hope that enough salt will cover it up.
Given the kind of abuse your body goes through at these restaurants, it’s a wonder that life insurance applications don’t ask where and how often you eat meals out. While hypertension and even a stroke can be underwritten at good rates, if a person is hanging out at the who’s who of salty foods, they have to present a higher mortality risk than those who actually monitor their salt intake at almost any level.
Bottom line. Eating right is simply not part of the American way of life and our habit of ignoring how food is prepared, especially the salt and fat that is used, is a recipe for obesity, type 2 diabetes, high blood pressure and stroke. It may be time to ask for sodium confessions before we order a meal.
May 18th, 2009
If you only had a crystal ball, right? If you knew when you were going to die you could put off buying life insurance right up to the last moment, or if you knew you would outlive the need for life insurance you could just not buy at all.
Well, unless you are terminally ill or have some tried and true hooey wooey visionary way of knowing when the end might come, you are forced to deal with statistics and mortality assumptions. How many times have I heard, “The insurance company is betting I’m going to live and if I buy life insurance I’m betting that I’m going to die”?
Well, let’s be really up front and fair here. The life insurance company does believe you are going to live or they wouldn’t sell you the insurance. Duh!! But does that mean they don’t pay out on tens of thousands of claims every year that were the result of unexpected deaths? If you’re a male between age 25 and 64 the life insurance companies will be right most of the time, but 1 in 6 times they won’t be. That’s right. When you reach age 25, 1 in 6 of you won’t see age 65. If you’re female 1 in 9 of you won’t make it that far.
Let’s say for a minute that car insurance wasn’t mandated by law, completely voluntary. If you knew that the chances were randomly 1 in 6 that you would total your car I’m thinking most of you would carry comp and collision anyway.
Let’s look at it another way. That TV show about 6 degrees of separation is probably overkill in this discussion. I suspect that very few adults can say that they didn’t personally know someone between 25 and 64 who died. Most of us know someone who died prematurely and didn’t have life insurance. We just had a woman in her 40’s die in a car accident last week and a man in his 50’s have a heart attack two days ago in our small town of 6000 people. The man is still alive, but is in critical condition and without a transplant isn’t expected to make it.
A young man in his 20’s who is an ongoing subject of prayer in a men’s group I attend has inoperable cancer. It really goes on and on and I don’t make these points to get people to buy something that is going to break the bank, or even their budget. I make these points so maybe someone will understand (that doesn’t already) that we have a good chance of living to old age, but we aren’t immortal. There is prudent reason to consider having life insurance. For all of those who I have delivered death benefit checks to, saying there is prudent reason would be considered an understatement.
Bottom line. Just food for thought. If there is someone in your life who is depending on you, make sure they really can depend on you.
May 13th, 2009
With most life insurance agents and most life insurance company underwriters, the mere mention of a history of seizure disorders or epilepsy is enough to bring the conversation and the application to a screaming halt. Not unlike a lot of the less common health issues, the agents don’t know what to ask and the underwriters don’t truly know how to assess the mortality risk or lack thereof.
A brief overview from the Epilepsy Foundation website tells us “Epilepsy is generally not the kind of condition that gets worse with time. Most adults who have it can expect to live a normal life span.” A normal life span? Isn’t that what life insurance underwriters are looking for? Lack of mortality risk? The answer is yes. Absent other health issues, if most adults who have epilepsy or other common seizure disorders can expect to live a normal life span, an expectation of paying no worse than standard rates is reasonable.
“Doctors treat epilepsy primarily with seizure-preventing medicines. Although seizure medications are not a cure, they control seizures in the majority of people with epilepsy.” I keep harping on what underwriters want to see when a person has a serious medical condition. It’s the same with diabetes, coronary artery disease or cholesterol. CONTROL AND COMPLIANCE!!! If you have epilepsy and are compliant with doctors orders, then you should have control. Good life insurance rates should follow control and compliance.
You need a good independent life insurance agent who doesn’t flinch when you mention epilepsy, but rather asks more questions like, “What medication you take? When were you diagnosed? How frequent are your seizures and when was you most recent seizure?, etc” If they head down that road with you, you are in the right office or on the phone with the right agent. If they don’t ask questions or don’t seem to have some working knowledge of your condition, keep on looking.
Bottom line. For most people with well controlled seizure disorders affordable life insurance rates are well within the realm of possibility. If that hasn’t been your experience consider the possibility that you may have put your trust in the wrong agent who led you to the wrong company.
May 13th, 2009
If anyone out there is suffering from the illusion that your medical records are accurate, let me clue you in. The chance that your records contain substantive errors is about 75%. The chance that your records are error free is within the margin of error for 0%.
Doctors and their staff maintain, and I use that word loosely, your records as if they are only for their use and will never be seen by anyone outside of their office. Given that point of view, things like updating family or social history, or asking you to review your records occasionally to help avoid errors, just aren’t in the cards. They just want to stuff it in there and get it back on the shelf.
Case in point is a client who quit smoking about a year and a half ago. He applied for life insurance and even though his labs showed negative for nicotine use, his records indicated that he was attempting to quit and having a very challenging time of it. This entry was 9 months after he had quit. The same entry under his social history was there from the year before. They never bothered to update the social history and he didn’t think, since they didn’t ask, to bring it to their attention. The life insurance underwriter deferred to the records and offered my client a smoking rate.
Once we found this error, a very common error of dragging information forward from one visit to the next without updating, he came across more errors. According to the family history both of his parents were deceased. This was news to him since he had just spent a weekend with them. The errors have now been corrected and we were able to get the smoking rate changed to non smoking and his parents are no longer dead.
Just like your credit record, your medical records need to be reviewed occasionally. It may not be the most exciting weekend activity you’ve ever come up with, but the longer errors are left alone, the less likely you will find them and the less likely that you can get them corrected. Doctors aren’t real big on correcting old errors when it is a you said/he said a long time ago situation. The best practice is to ask your doctor or nurse to scan or fax you a copy of the completed notes after any office visit. A fresh error is easily corrected.
Bottom line. Getting an error corrected mid underwriting is tough. Doctors don’t jump on these tasks as top priority. They also don’t like changing records because that is admitting that they did something wrong and they see malpractice written all over that admission. And underwriters, rightly so, are often a little skeptical about changes in records that occur during underwriting. They, depending on the error, might see it as a manipulation of the system to improve your perceived mortality risk.
May 13th, 2009
Very few weeks slip by that I don’t take the opportunity to drive home the life insurance consequences of not following through with a doctor’s recommendation for a test or a follow up visit. These may seem like small things, but in the world of underwriting it is seen as being non compliant and is a sure way to get declined, or at least postponed until you break down and follow directions.
That happened to be point number 4 in an article I read today with what I thought was an amusing title, “6 Health Mistakes Smart People Make“. In their example they talk about a woman not following up on a pap smear that showed suspicious looking cells. Doctors, and you would think patients, want to rule out any chance of cervical cancer, but too often the followup testing is not done.
Whether the excuse is too busy, too expensive, or that you don’t agree with it, not completing prudent followup is dangerous to you and a death blow to any attempts to get life insurance. Whether it is going on cholesterol meds and not following up to see how it’s working or what impact the medication is having on liver functions, or someone who has had a basal cell carcinoma removed and doesn’t regularly see a dermatologist, not following through with medical advice can be a mortality risk you’ll wish you hadn’t taken.
Bottom line. All six suggestions are good, but I thought a bit strange that they would make it sound like smart people are supposed to somehow care more about their health. The truth is that doing all the right things when it comes to our well being is just not that common no matter the IQ. People don’t want to admit they have health issues and they don’t want to have to submit to a routine of checking up on themselves.
May 12th, 2009
When I got my briefs in a bunch earlier this year in a little spat with ING Reliastar, on the surface it would seem that we were arguing semantics. Just underneath the surface is a gray area about half the size of the universe where life insurance companies seem to make underwriting decisions just because they can, and because it makes more money for the company. In their mind there is no overriding need for logic.
And I scream, “Show me the mortality risk”!!!!! Back in the day (been wanting to say that) I distinctly remember being taught as a new agent that underwriting decisions were based on mortality tables and mortality experience. Forgive me, but there is no stinking difference in mortality experience that anyone can show me between a cholesterol ratio of 5.0 and 5.1. In this particular instance we were fussing about a guy whose total cholesterol was 253. His HDL was 49.6 and they said it needed to be 50.6 in order to get preferred rather than one rate class difference. That one rate class change would have made his premium 30% higher. Show me the 30% higher mortality risk!!!
I realize that there have to be lines drawn in the sand. There are readings that can change a little and truly do have a noticeable, dramatic mortality experience impact. Someone with prostate cancer whose grade was a Gleason 6 can get good rates on life insurance and a Gleason 7 is scratching to get any offers at all. That’s because the difference between those two grades is like the difference between an earthquake Richter scale 6 or a 7. One shakes you up and the other knocks your house down.
I have never been one to fuss with underwriters when they have a legitimate reason for changing a rate. I can handle the fact that they have guidelines that they need to follow, but when they call them guidelines and to the detriment of common sense, they treat them as hard and fast, set in concrete rules, we have a problem. This may just be the world according to Ed, but if a company can’t show the difference in mortality experience between their “guideline” and, for instance, a specific lab result, the default should go to common sense.
Several states have already force companies to take this approach when it comes to foreign travel. Unless a company is willing to supply mortality experience that shows travel to a certain destination is an additional risk, they can’t decline or rate someone for that travel. Some states have even taken the stance that absent mortality tables for foreign travel, a company can’t even ask about foreign travel.
Bottom line. While I do occasionally fuss, the truth is that most life insurance underwriters are willing to give a fair hearing and make a fair decision, but for those that won’t or don’t, again I scream, “Show me the mortality risk”.
April 29th, 2009
I did a series of posts last year on life insurance policies and have referred back to those posts on several occasions when explaining some specific clauses and options such as the suicide clause and incontestability clause and the conversion option.
Now I would like to start from the beginning and talk about the application. The application itself has been something of a sore point with some customers and for a few who are more concerned than the average person with identity theft, a cause for deciding against applying. I have actually had clients pull the plug completely on purchasing life insurance to protect their family because of questions about their social security number, their income and their net worth.
For the purposes of this subject I’ve chosen to use a West Coast Life insurance application mostly due to the simplicity of the document. west-coast-life-application Notice that they don’t beat around the bush with identity information. Coming out of the first line of the application they have your name, date of birth, social security and driver’s license numbers.
The social security number is right up there with the most frequent “Why do they need to know that?” questions I get. It’s not questioned that often, but probably 1 out of every 100 clients has some issue with it. There are really two reasons. The SSN is used to confirm identity on both the application and upon death. The other reason is that your death is an event that has to be reported to the IRS. Even though the death benefit is not income taxable to your beneficiary, the amount of the death benefit is added to the gross value of your estate for estate tax purposes unless it is owned by a life insurance trust. So, like it or not, if you want life insurance you’re going to have to share your social security number.
I get less grief over the driver’s license number, but the reason for the life insurance company having it is because most life insurance applications require a copy of your motor vehicle record. Most people never think about it, but the type of driver you are does have some impact on your mortality risk.
The application then moves into your occupation. While you do need to provide your employment information, I can honestly say that I haven’t heard that insurance companies necessarily verify your employment. But here is where two other questions come up that people aren’t that keen on sharing the answers to, income and net worth. “Why do they need to know that.” The need is less sinister than those who are concerned about might think. Income and/or net worth are determining factors in how much life insurance a company will underwrite on an individual. For non estate purposes, a multiple of income determines the max. For estate tax purposes, the amount of insurance is determined by the net worth minus the exemption times the tax rate. So, they don’t really care or necessarily check on how much you make, but the insurance companies do have some interest in not insuring someone who makes $20,000 a year for $2,000,000. That goes a bit beyond the whole replacement of income idea.
Next comes a synopsis of the type and amount of coverage being applied for followed by the beneficiary designations. It’s important to note that the application actually becomes part of the policy when approved and issued and the beneficiary designation in the application is actually the only place in the policy where the designation is noted.
This is followed by non medical history covering such things as foreign travel and whether or not you are a private pilot. After that is medical history. The application is kind of a synopsis in these areas. If there is more information needed in non medical history questionnaires are completed for things such as aviation, scuba diving or foreign travel. A more complete medical history is done during the exam.
And last on the list of information needed is a list of life insurance currently in force and whether you intend to replace it or not. This is another area where people get a little testy, thinking that it’s not the business of the company to know whether they are replacing anything or not. But keep in mind that it is the business of the company to know whether they are going to be a party to over insuring you. It is also the business of the company to be compliant with state laws and provide the appropriate forms for replacement.
Bottom line. There are a lot of personal questions on a life insurance application. It’s important to keep in mind that they have have valid, important reasons.
April 27th, 2009
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