Insurance: How to avoid “declines”

Although most clients have no trouble getting approved for life insurance, medical conditions and lifestyle factors can make it harder for some. You can play a critical role in helping this latter group of clients protect themselves and their families.

Working with hard-to-insure clients can involve more work than average, and the outcome isn’t always favourable. However, helping these clients can pay off in the long run.

Jack Bendahan, a senior life insurance advisor with LifeMan.ca in Markham, Ont., has built his business in this market niche. “It’s rewarding to help people,” he says. “When you go through all that work and you get them what they want for a price that’s very agreeable, I think they’re very grateful.”

Clients can have trouble getting approved for life insurance for various reasons. About 80% of declined applications are related to medical issues, according to Michael Taylor, vice president of sales with Toronto-based Hunter McCorquodale Inc. This can include clients who have a history of cancer, diabetes, heart disease, depression and many other medical conditions.

Other reasons for declined coverage may include involvement in extreme sports or activities, dangerous occupations or travel to potentially dangerous regions.

Roughly one in 20 – or about 35,000 – life insurance applications are declined in Canada every year, Taylor says, adding: “Most advisors, if they write any volume of life insurance, are going to have a ‘decline’.”

By using certain strategies, however, you can help your clients avoid being declined. When you encounter a client who may have trouble getting approved, try laying the groundwork before proceeding with a regular application.

Bendahan suggests beginning with a general inquiry, which involves approaching a variety of insurers with information about the client’s situation, such as age, weight and medical details, to find out whether he or she is likely to be approved: “Give them as much detail as possible, without including their name.”

Although not all insurers will respond to general inquiries, many will respond quickly with an indication of whether the client is likely to be approved – at either a standard premium or a rating – or declined. These responses can help you decide whether to proceed with the application.

“If you do this inquiry first with the insurance companies,” Bendahan says, “it saves you a lot of hassle down the road, time being wasted and a decline on the client’s file.”

If a decline appears likely, it may be best to apply for a non-medical policy, which does not involve medical underwriting and generally is easier to get approved.

Avoiding a decline is important. A single decline makes it considerably harder for the client to get approved by any other insurer. Even applications for non-medical policies usually include a question about whether the client has been declined within the past two years.

Bendahan recommends having clients who run the risk of being declined apply for non-medical insurance prior to applying for a traditional policy. That way, if they aren’t approved for a traditional policy, they’ll have another option.

It pays to be proactive, agrees Olivier Courteaux, director of underwriting and education with Toronto-based Canada Protection Plan Inc., which specializes in non-medical life insurance policies.

“If the broker knows that the client has significant medical conditions and knows that [the client] is be likely to be rated, or even declined, by the traditional life insurance companies, then they may want to come to us,” Courteaux says. “There is a greater likelihood that [the broker] will be able to offer something to their client.”

Non-medical policies won’t meet every client’s needs, Bendahan says. They tend to have “considerably” higher premiums, he says, as well as lower levels of coverage. Furthermore, some policies have a deferral feature, which stipulates that if the insured dies by a non-accidental death within the first two years of the policy taking effect, the death benefit is limited to a return of premiums plus interest. Nonetheless, Bendahan says, these policies can be a good option for clients who are harder to insure.

For clients who are considered particularly high-risk from an insurer’s perspective, another option is to try a special-risk insurance provider. Hunter McCorquodale, for instance, caters to clients who cannot get approved for traditional life insurance coverage and, in many cases, have been declined by other insurers.

The premiums on special-risk products can be substantially higher than traditional life insurance products. As a result, Taylor says, some clients won’t be able to afford this type of coverage. However, he adds, it’s helpful for advisors to be able to offer some type of solution for clients who have no other options.