Getting insured -- no matter what ails you

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Getting insured -- no matter what ails you
By Karen Kroll • Bankrate.com

Even if you've had a serious illness or medical condition you can still get life insurance.

Contrary to common belief, the insurance industry has changed dramatically in the past 20 years and no longer operates on a "pass-fail" mentality with no other option. Today, many companies assess that risk and will sell life insurance to almost anyone -- commonly called "impaired risk" life insurance -- at a price, of course.

Even if you've been diagnosed with cancer or diabetes or have had a heart attack, chances are you won't be completely shut out of the market.

Currently, 93 percent of life insurance applicants are insurable at some cost, says Michael Tessler, president of Brokerage Unlimited Inc. in St. Louis, Mo. The remaining 7 percent are considered uninsurable, not because of illness but because they either use drugs or participate in high-risk activities such as extreme skydiving.

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Grading on a curve
Ten or 20 years ago, many of the larger life insurers took a "pass-fail" approach to coverage, says Chuck Hinners, owner and president of Compensation Resource Group in Madison, Wis. "You either got a policy or you didn't," he says.

Today, many companies have several dozen gradations or ranges of risk, including preferred risk, standard risk, and substandard risk. Based on your health history, you'll fall within a certain risk range, and that will determine how much you pay, Hinners explains.

As cold-hearted as it may sound, you pay more if your life expectancy is shorter, which may or may not be the case if you've experienced a serious illness. That's because a life insurance policy is a promise to pay a certain amount when you die. The sooner you die, the sooner the insurance company has to pay. Given the time value of money, that costs the insurance company more.

It's also important to note that insurance companies view your health history differently than your family physician does. For instance, if you've had a heart attack, but now are active and leading a normal life, your cardiologist may say you're doing fine. An insurance company doctor, on the other hand, will review some 100 years of actuarial statistics and conclude that, given your heart attack, you're likely to die at 70, rather than at 85. "So, the company will have to pay the claim 15 years earlier," says Tessler. "Because of the time value of money, your premium will go up."

Shop before you drop
Certainly, shopping for a policy after a diagnosis of a serious health condition will require a fair amount of legwork. But shopping around can be worthwhile. Different insurance companies often take significantly different views of different diseases. While one company may deny coverage altogether, another may decide to get aggressive and offer a policy at a standard rate. "There's that much difference," says Tessler.

For instance, Susan Calomino, a CFP with Lincoln Financial Advisors in Chicago had a client who was diagnosed with breast cancer while in her late 30s, although it was caught quite early. She also had a history of breast cancer in her family.

Several insurers accepted the client's application for a policy, but were going to charge what's known as a "flat rate extra" for five years. That is, in addition to the standard premium she would have had to pay an additional amount for five years. The price tag was a hefty $4,000 annually.

Another company also said that it would charge a flat rate extra, but just for the first year. After that, the woman would pay the standard rate for the next 19 years. "Some companies are kinder to clients," says Calomino.

You can help yourself by following these additional money-saving tips:

Start with your employer. Many offer life insurance to all employees, regardless of their health histories, says John Scherer, CFP and owner of Trinity Financial Planning, Madison, Wis. Some alumni associations and professional organizations also offer life insurance without requiring a physical.
Pick a good agent. Find an experienced agent who really knows the market and who knows how to present your health history in the most positive light possible. David Woods, president of the Life and Health Insurance Foundation for Education in Washington, D.C. explains, "The agent can get a good feel for who might be interested in insuring you, and the probable price range." Keep in mind many larger insurance companies use the same small group of reinsurers to take on part of the risk in exchange for a portion of the premium. But once a reinsurer takes a position on your application for a policy with one carrier, it will take the same position for another, says Don Brain, president of Corporate Benefits Consulting Group, LLC in Overland Park, Kan. So, if a reinsurer declines your application to Company A, it probably also will decline your application to Company B.
Pick a stable carrier. Don't focus so much on the price of the policy that you end up with a carrier on shaky financial ground. "Life insurance is a promise to pay 10, 20, 30 or 40 years from now. You want to make sure the carrier will be there," says Brain.

Scherer advises looking for companies with a rating of at least A+ from A.M. Best Company Inc., or B or better by Weiss Ratings Inc.
Let time heal. Often the passage of time after a heart attack or surgery will make it easier to obtain life insurance at a reasonable rate. Reapply for insurance after a year or two has passed since you underwent bypass surgery or your cancer went into remission. "The longer you allow time to pass, the more likely you are to get substantial relief," says Brain.
Clean up your act. The healing hand of time works even better if you can demonstrate that you're taking steps to control or improve your condition. A man who stops smoking, starts exercising and improves his diet after suffering a heart attack becomes a better risk. Some life insurance companies will take that into account when deciding whether, and at what price, to offer coverage.
Get testimonials. Ask your physician to write to inform the insurance company of the actual status and risks of your condition, says Brain. A letter from your fitness instructor regarding your progress may also help.
Ask and you shall receive. Most companies aren't going to go around advertising that they're willing to reduce your rate down the line. Make a point of asking for it.
Never lie. Even though you want to shop aggressively, don't lie about your physical condition in the hope of getting coverage or a better rate. Your insurance carrier probably will find out. "You can't get anything past them," says Hinners. That's because most insurers work with an organization known as the Medical Information Bureau, or MIB Group Inc. "This is like a credit reporting agency for life insurance companies," says Scherer. The bureau compiles the health and medical information that individuals submit to insurance companies when they apply for a policy.