Life insurance companies are humorous in the way they run toward good business and just as easily get cold feet and run away from it. They’ve told us since God created the heavens and the earth and life insurance that the factors that make up life insurance rates are actuarial studies, mortality experience, interest rates and company performance. Let me just say that there are a lot of things in life that can change quickly, but one of them, the back bone of life insurance cost analysis, actuarial statistics, is not one of them.
The basis of actuarial science as applied to life insurance lies in mathematical methods applied to statistical methods (as in methodical) to determine risk and translate that risk into rates. While math can now be computed at higher speeds, the answers to actuarial math problems are no different than they were 30 years or longer ago. Statistics change but with very few exceptions do they change quickly. We’ve seen examples of statistical change lately that, considering the impact of the events, the extreme drop in HIV developing into AIDS and a cure for Hepatitis C, took years to show up in actual life insurance underwriting. HIV is still battling to find a solid company to stand behind the data, but rumor has it we should be there shortly.
But back to the life insurance mood disorder dance of the last five years. It wasn’t that long ago that we were able to get several company underwriters on board with the fact that they were using the bucket underwriting system with mood disorders, and especially with Bipolar II and anxiety. Bucket underwriting is simply the lazy method of taking everyone with the same impairment, in this case let’s use Bipolar II, throwing them all in the same bucket and giving them all the same rate. So if you take a corporate executive who has been the key person in building a company that employs 5000 people, who has never been hospitalized, never had a suicidal thought in his life, has been married 24 years and has 5 children, and is a deacon at his church and consider him for life insurance. And then you take a person who is on disability for bipolar, has been hospitalized a few times and can’t seem to get the compliance with medication thing down and you consider them for life insurance and you decide they both deserve the same rate class because they both have Bipolar II. That’s the bucket and that’s how most life insurance companies underwrite and that’s not fair. That is lazy and stupid underwriting and has nothing to do with life insurance actuarial science or mortality risk or math or anything else that might make sense.
Bottom line. Five years ago I could get a preferred approval for the first example in the last paragraph. That made sense. Bipolar II was not affecting his ability to lead a productive, stable, successful life. Now the same companies, weary of the work it takes to read records and differentiate between the two are now offering the same rates per thousand for both. Now it’s easy for the underwriters and unless you’ve got a life insurance agent willing to work his or her tail off, it’s bad news for the clients. If you have any questions or feel like you’ve gotten a raw deal on your life insurance, call or email me directly. My name is Ed Hinerman. Let’s talk about it.