You applied for an insurance policy (life, disability, critical illness or long term care) and your agent advised you that “there is good news and bad news”.
The good news is you got approved for coverage. The bad news is that the insurance company has rated the policy a substandard risk. That means the premium is higher than standard rates and/or certain conditions or exclusions have been added to the policy.
Your first reaction is likely anger. You might want to tell the insurance company to take their offer and put it where the sun doesn’t shine. After you take a deep breath, you consider the following three options:
- Delay accepting the policy pending a visit to the doctor.
- Apply to another insurer to see if they will offer better terms.
- Accept the offer and then visit your doctor to discuss the issue that led to the rating.
If you want to know why option #3 is the best choice, consider some real life scenarios recently shared with me by one of Canada’s largest insurance companies:
Case 1
Insurance: $5 million Term insurance policy
The need: Funding a buy/sell agreement; legal agreement is final and insurance is mandatory.
Client 1: Age 56
Client 2: Age 58
Medical requirements: Full medical exam, blood profile, urinalysis and a stress EKG.
What happened:
Client 1: Completed the underwriting requirements with normal tests and is assessed standard.
Client 2: Presented with a rhythm abnormality on his stress EKG known as ventricular tachycardia (V-tach). This episode only lasted for three to four beats, which is good, since an extended V-tach can lead to ventricular fibrillation and sudden death. V-tach is generally, but not always, associated with underlying coronary artery disease.
The decision: Insurer decided on a rating of 250% but shopped the reinsurance market for a better offer. After a week of negotiation, they were able to secure an offer of 175%. (175% rating means that if the standard premium was $1,000, the rated premium is $1,750)
What happened next: Prior to accepting the contract, the client discussed his case with acardiologist friend and then underwent a coronary angiogram. This test indicated severe stenosis of two coronary arteries. The client underwent a coronary angioplasty with stents placed in two arteries. After, the applicant gave the insurance agent the report and said “You were right, I was sick but now I’m cured.”
Unfortunately, it’s the insurance industry’s standard for cases where there are two diseased blood vessels and a coronary angioplasty to postpone for six months and then apply a significant rating. So when the reinsurer received the additional report, they withdrew their 175% rating. Six months later the client reapplied and was rated 250%.
The lesson: By seeing his physician prior to accepting the rated policy, the applicant had rendered himself temporarily uninsurable. Furthermore, there is no guarantee the applicant won’t be considered uninsurable permanently. Eligibility for coverage is always subject to change until your policy is in force.
Case 2
Similar to the case above, this client had T-wave abnormalities on his electrocardiogram. His coronary risk profile was not ideal. He had a positive family history of coronary artery disease, had been a smoker 10 years prior, had borderline cholesterol and was being treated for hypertension.
The decision: The insurer offered a 150% rating and the case was immediately placed. The insurer sent a copy of the suspect electrocardiogram to his physician with a letter indicating that they would be open to reviewing the rating after additional cardiovascular testing was done.
What happened next: The applicant completed a stress echocardiogram test and was deemed normal.
The insurance agent sent the insurance company a Request for Change form asking for a rating review. In response, the insurer requested an Attending Physician’s Statement which confirmed the normal stress echocardiogram results.
Within three months, the risk rating was removed and the premium reduced.
In Summary
As you can see from these two examples, if the option to accept the policy is available, it is best to accept a rated offer while you attempt to improve your health status, get updated test results to the insurer or shop around.
You can always replace the policy down the road if better options emerge.
This information is of a general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc. assumes no responsibility or liability.
