Special risks. Substandard risks. Impaired risks. No matter what euphemism we use to describe them, potential life insurance clients with health problems can be a source of frustration, wasted work, and lost time.
But that does not have to be the case. Handled properly from the start, a life insurance sale to a client with health problems can give agents the extra satisfaction of helping a client whose family has a special need for life insurance protection -- and it can often mean higher commissions.
Life underwriting, past and present
Always ask about your client's health before you even think about quoting a premium. It is easy to quote a super-preferred premium to get a client's interest, but once you back off that super-preferred premium, you will turn your interested client into a hard sell. But don't resign yourself to failure if they reveal a health condition -- it doesn't necessarily mean they won't be approved.
Today, more and more medical impairments have become insurable. Back in the 1950s, all heart cases were underwritten severely. There was no treatment then for heart disease aside from only partially effective medications. Since then, advances in heart disease treatment have caused a revolution in the underwriting of those disorders. Coronary bypass surgery, less-invasive stent patches to blocked arteries, better diagnostic tests, and more-effective medications have all combined to make heart disease a relatively predictable and treatable impairment.
This is the case with many conditions: Most cancers, diabetes (especially Type I, adult onset), and unusual blood disorders such as hemophilia are now insurable on some basis.
Underwriting has actually become both more and less aggressive -- depending on the condition -- because of the extensive experience the life insurance industry has had with medical (and non-medical) problems.
Underwriting problems that are generally handled somewhat less favorably today include:
o Type II diabetes (generally, diabetics who require insulin for control)
o Certain prostate cancers
o Diabetes in combination with heart disease
o Foreign travel to potentially dangerous countries (especially non-instrument rated pilots)
Underwriting problems that are now handled more favorably include:
o Parkinson's disease
o Multiple sclerosis
o Atrial fibrillation (a pulse irregularity)
The preferred pool
Over the years, most life companies have developed the concept of preferred risks -- even preferred-plus, super-preferred, etc. The purpose of this is to permit more detailed underwriting selection among basically unimpaired people, separating the average from the better than average. It also allows for more aggressive pricing and more aggressive price competitiveness.
Remember that "standard" is supposed to mean the mortality rate of the average American. All things being equal, we should all die at the average (or standard) rate. That is, unless we develop health problems, in which case we would be rated or we would take care of our health extremely well, which should put us into one of the preferred-rate categories.
In the recent past, it was common for underwriters, with slight pressure from the field, to squeeze a client up from standard to preferred or from preferred to preferred-plus. That practice is becoming rare because of the pressure re-insurance companies place on underwriters to make the preferred categories represent people who are well above average in health. Excessive liberality in moving standard clients up into preferred categories is often called "polluting the preferred pool."
So how do you properly handle a special risk?
You've all heard the "location, location, location" mantra from real estate agents. The mantra agents should learn concerning the proper handling of a special risk life insurance case is "Information! Information! Information!"
It's essential to answer your underwriters' questions before they ask them. The more home office underwriters have to dig for health information, the more suspicious they become. A suspicious underwriter is a bad thing for you. Their underwriting will take longer, and the final decision may well be less favorable than it might have been.
Include a cover letter to the underwriter with all special risk client applications. Tell your underwriter hard facts about your client's health. Depending upon the medical history involved, it might be a list of all prescriptions, over-the-counter medications, and even herbal preparations your client may be taking. It might be a detailed list of doctors they've seen (with addresses) and why and when they saw them. Put as much information as possible right up front with an application, and your client's file will move more quickly and probably even more favorably through underwriting.
2005 and 2006 have been years of change, both good and bad, in the impaired risk life underwriting market. One thing, however, has remained constant throughout: If you let clients with health problems scare you away, and if you are not taking advantage of the high-satisfaction, high-profit possibilities of the impaired risk marketplace, you are missing out on one of the more interesting aspects of our life insurance industry.
Dick Riker, CLU is director of medical underwriting for Innovative Underwriters, a life brokerage agency in Philadelphia. Mr. Riker has been in the life insurance business for 48 years and has written numerous magazine columns along with a pamphlet, "Answer Your Underwriters' Questions Before They Ask Them." He can be reached at dickriker@innovativeunderwriters.com.
