I went to war with the life insurance industry several years ago over the issue of children with impairments not having access to coverage, even at a higher rate than the standard rate they offer perfectly healthy kids. The issue came up when I shopped for life insurance for a mother whose child was a healthy, thriving, type 1 diabetic.
I expected a lot of the not interested responses I got. I knew, for instance, that there were a lot of companies that didn’t offer juvenile or children’s life insurance at all. And I did know that any company that said yes was going to be stepping out on the faith that doing good is not the opposite of making a profit.
There is a thing called adverse selection in insurance. Simply, adverse selection is when a person or group of people with a higher mortality risk than the general population are allowed to pay the same for their insurance as people who have an average mortality risk. Adverse selection isn’t profitable and that is the concern of most of the life insurance companies I’ve talked to when it comes to impaired risk children’s life insurance. They are afraid that if they allow, say, type 1 diabetic children to have access to life insurance, even a at higher rate, they will have only parents of the sickest of the sick buying insurance.
They are also concerned that if they open the door for one impairment then they would be setting the precedent and opening the door for all impairments. The companies that I’ve talked with are also concerned that they will be the only company out there taking all of the risk. Another company said they wouldn’t even know how to price a product because they don’t have any mortality statistics on children at all. Another company said they wouldn’t want to have a bunch of impaired risk children’s life insurance on the books that could conceivably be converted to a product with a higher face amount when the child reached adulthood (a common feature in juvenile life insurance).
The Truth!!! All of the excuses are lame so let’s address them and see if a life insurance company or, hey, how about all of the insurance companies as a group, can figure out a way to take on this task.
1. Adverse selection. Life insurance companies already have all of the tools in place to deal with adverse selection. It’s called underwriting requirements. I’ve explained to them that the parents of children with type 1 diabetes that I’ve talked to aren’t looking for someone to spring for the funeral for their children who is obviously not going to live. They are looking for the same thing that every other parent who believes in the value of juvenile life insurance is looking for, coverage for the unexpected. If life insurance companies can underwrite a life insurance policy for a young adult that has an annual premium of $200 and a death benefit of $250,000, they can afford a simplified underwriting program for impaired risk children when the death benefit at risk is only $10,000. You know what really shoots this adverse selection in the foot is companies like Met Life who offer up to $500,000 for adults at preferred rates without an exam. Met Life also underwrites active duty military even though they have orders to a dangerous war zone. That’s adverse selection! With the military though they treat our special forces the same way they treat children. Rather than charging a Navy Seal or an Army Ranger more for the higher risk, they just won’t accept the risk at all. They throw the door wide open on adverse selection and slam it shut when it can clearly be managed through a little higher rate.
2. Opening the door!! So what? Understanding that there is still a decline available at the end of the underwriting (parent understand this concept), who care how many impairments there are. No one is asking a company to approve a child with multiple myeloma. Adults are declined and children would be too. If an adult has epilepsy there are some pretty straight forward criteria for approval and or a decline. The same criteria would work for children. Understand that I have not asked any companies to offer this insurance at the same rates as parents pay for life insurance on healthy children. Higher rates or graded benefits are ways they can handle this. Simplified underwriting where rather than obtaining all the medical records they have a questionnaire that the child’s doctor has to fill out and sign concerning the state of the child’s health in relation to the impairment.
3. Not wanting to be the only one! Of all of the excuses this is the one that holds a little bit of water. But what if, just what if there was a meeting of product development people from every insurance company, or at least from 50 or so out of the 2000, and they devoted a week long forum to determining how to spread this risk and the workload among them all. Obviously I am passionate about this and I don’t see why it wouldn’t work. That’s what insurance is all about, spreading the risk. The real answer to why not is that life insurance companies are too complacent and too self centered to take this on seriously.
4. Wouldn’t know how to price it!! Horse feathers! Price it twice or three times as high as the standard rate that most children pay and call it good. That’s what the companies due with impaired risk adult life insurance and you don’t hear them crying about putting themselves at risk for, like a client of mine I just got an email from, for $1,000,000 at table 8. I’ve also suggested making it a non commissionable product. That’s right. Agents wouldn’t make any money from it. I know a lot of agents who are fine with this but it doesn’t move the insurance companies at all.
5. Conversion! Again, so what! These companies underwrite children at birth and promise to give them more insurance at age 21 or 23 and they take the risk on for whatever happens in those 20 some years. At a higher rate they are covering the same what ifs.
Bottom line. I have talked to so many product development people, underwriters and vp’s and presidents of life insurance companies in the last 5 years that is is simply hard to believe that so many intelligent people just don’t get it or don’t have the compassion to get it or the desire to get it. Anyway, if you have any questions about this update, please call or email me directly. If you’re the president of an insurance company, please let my office manager know so I can make you my next call back. Let’s talk.