Top Reasons Why a Life Insurance Application is Declined

According to Michael Taylor, vice president of sales at Hunter McCorquodale about 5% of all life insurance applications are declined in Canada each year. This equates to roughly 35,000 decline policies.

He stated this in an article from Investment Executive in July 2013

The article goes on to list some of the primary reasons people are declined for life insurance. The number one reason is health history. Applicants can be declined for health due to illnesses like cancer, stroke, heart disease, diabetes, depression and any number of other medical conditions.

Some other reasons why applications can be declined are the insured’s occupation, participating in hazardous activities or traveling to dangerous areas across the globe.
For example, Insurers are very hesitant to issue coverage to applicants traveling to certain parts of the Middle East.

Applicants who have been declined for life insurance can consider either simplified issue coverage or guaranteed issue coverage.

The former has no medical test, but does have a short series of health questions, while the latter has no medical tests and no health questions. Simplified Issue policies are lower in cost and have higher face amounts than Guaranteed Issue policies. Simplified Issue plans come in Term and Permanent policies. Term policies start off lower in cost and either expire at the end or the Term or go up in cost. Permanent policies start off higher in cost but the premium are level.

Some Simplified Issue Permanent plan like the one offered through Canada Protection Plan have a choice where the insured is covered for life but the policy is paid up in 20 years. This quick pay option results in a higher initial premium. Many Simplified Issue plans offer coverage from day one. If the insured has been declined for insurance in the last 2 years they will not qualify for an immediate pay Simplified Issue plan. Therefore it’s important that the insured looks into Simplified Issue plan first if it looks like he/she may be declined for life insurance.

Guaranteed are higher in cost than Simplified Issue plan in some instances as much as double the premiums.  Guaranteed Issue always come with a deferred death benefit menaing that if the insured dies – usually within the first 2 policy years by a non accidental death – the death benefit is limited to a return of premium plus interest. Some good news, the return of premium interest rate with The Edge’s now underwritten by Cooperators is 10%.

Other Guaranteed Issue issue providers include Bingham Group Services underwritten by Foresters Life Insurance Company and BMO Insurance and Manulife Financial which both offer direct sold Guaranteed Issue plans not available through brokers.