What to Do If You Are Denied Life Insurance

We consider life insurance one of the top priorities for families. Life insurance will replace lost wages, pay off debt, or take care of end-of-life expenses. What you need depends greatly on your unique situation. As a good rule of thumb, we recommend 10-12x your annual salary in term life insurance. However, some clients can’t obtain coverage because of a medical condition, either current or past, or a financial situation. Insurance is a transfer of risk, and it could be that no insurance company wants to take on the risk you are trying to transfer to them, or if they will, the premium is more than you’re willing to pay or doesn’t make financial sense.

Understanding the Process

I want to give you a window into the process before we talk about your denial options. You start by filling out an application and answering a slew of questions. Then, someone at the insurance company digs into your history and decides if your situation is a risk the insurance company is willing to take in a process called underwriting. For me, that included a nurse who came to the house to take vitals and samples. The part that took the longest was for my doctor to send my medical records to include in the analysis. The insurance company handled the entire process, and it didn’t cost anything. Then, you’ll get an answer with an offer of coverage or sometimes a denial. In the case of a denial, there are some approaches to fill in the gap.

What’s Available Through Work?

Many employers offer basic life insurance at no cost to employees. They can offer up to $50k as a fringe benefit tax-free. This is great value for those with a situation that makes them uninsurable because you receive that life insurance without qualification. If they don’t offer basic life, they may offer optional, voluntary life insurance, in an amount for which you don’t need to go through underwriting. I’ve seen voluntary life insurance of up to $150k that can be obtained, no questions asked. If you qualify for both, you effectively stack these death benefits.

What if you have a spouse who is uninsurable and doesn’t have any of these workplace benefits? Some companies offer guaranteed issue spousal coverage (typically $10k-$50k) that can be elected. This small amount of coverage is meant for end-of-life expenses and costs a couple of bucks per paycheck.

I want to make an important point about workplace insurance. The voluntary no-questions-asked coverage is usually only available when you start with an employer. Later, you can still get coverage, but the ability to skip the underwriting interrogation isn’t available. Because of that, it’s important to make the right benefit choices from the get-go. At The Dala Group, we prioritize employer benefit checks when you become a client and yearly during your benefit open enrollment period.

Wait It Out

If you were rejected, start by finding out the exact reason for their determination. It could be that their information isn’t entirely accurate, and you need to correct the record. If you write a well-articulated, fact-based appeal letter, the insurance company can take another look at your situation. If you’ve recently made a lifestyle change that contributed to your denial, stay focused on continuing your new healthy habits. If you’re denied for a financial situation such as a low credit score or bankruptcy, continue to work on getting your financial house in order by living on less than you make and paying off all consumer debt. With time, companies may evaluate your situation differently.

Unconventional Routes

Guarantee Issue is a type of policy you can obtain that doesn’t require a medical exam. You’ll see infomercials for these policies and can fill out a quick online application. While we stay away from them in all cases, the only exception is a condition where there is no other option. The big drawback is they have a significantly limited death benefit and cost substantially more per unit of coverage. Sometimes, the policy won’t pay out if you die in the first years of the policy.

Finally, some of you may have an income that affords you the ability to plan ahead and build wealth. We call this self-insuring. This means you sacrifice other spending and savings goals to fund an anticipated need five or ten years into the future. For instance, you may have cognitive decline or the onset of ALS or Parkinson’s. You won’t qualify for life insurance, but you can start to adjust your spending and plan ahead for your family. Depending on the diagnosis, this could give you a substantial number of years to build up assets your family can use if you pass away, just like what a life insurance policy would have done.

Final Thoughts

The idea flashing like a yellow light in my mind is this: Don’t put off protecting your family today. Term life insurance is not difficult to obtain when you are young and healthy, and it’s cheap! You never know what the future holds, and you may not be able to qualify for the coverage your family needs later. I put it off way too long myself, so I get it. We are here to steer you toward the coverage you need and have reputable insurance brokers in our network we trust. Don’t hesitate to book a call with us if this resonates with you.