Disability doesn’t automatically mean a life insurance denial

If you are turned down for life insurance by one company, don't give up. Each company's underwriting department has a different set of rules. One insurer rejection doesn't mean all companies will turn you down. 

The same goes for insurance rates. One insurer may consider you a high risk and put you in a more expensive health status. Another may feel you pose a lower risk and give lower rates. 

John Nichols, a board member for national nonprofit Life Happens and partner at Acrisure Insurance Wholesale Solutions, says people shouldn’t assume that being disabled means a denial.

"There is definitely hope. That said, there are many types of disabilities and degrees of severity that may affect mortality. Generally speaking, disabilities caused by accidents are 'easier' to insure as many will have less of a negative effect on mortality. On the other hand, disabilities caused by illnesses are more complex depending on the severity and the impact on mortality. One example is cancer, which is more complex depending on when, what type, prognosis and more," he says.

Nichols explained there are three broad categories for life insurance that people with disabilities face:

  • Normal approval -- Provides benefits and pricing with no formal rating for current medical conditions or history.
  • Substandard -- Equates to a percentage increase in premiums, ranging from 25% to 100%. The increase can be permanent or for a set period of time. 
  • Impaired risk -- Benefits those who may have been denied from other traditional carriers due to the complexity or severity of the medical condition. These provide full benefits after three years of coverage and premium payments. "These policies tend to be more expensive compared to normal approvals," Nichols says.

Finding life insurance for people with disabilities

Some insurance companies have specific programs for certain disabilities. Paula Tremblay, media relations staff member at MassMutual, says the company offers a program for individuals with disabilities and their families.

MassMutual advises individuals with disabilities and their families to select their insurance carrier and financial advisor thoughtfully so that all relevant factors can be evaluated carefully. For example, MassMutual has a program called SpecialCare.

The program provides access to information, guidance and financial products and services that can help improve the quality of life for people with special needs. Programs like these offer special training to agents, so they're better able to serve their clients.

MassMutual offers individuals with Down syndrome, cerebral palsy and autism life insurance coverage.

"The offering is a Whole Life Legacy 10 Pay whole life insurance policy with a $25,000 face amount for individuals ages 1 to 49 with Down syndrome, cerebral palsy or autism. There are certain conditions, however, that are excluded and will result in a decline, such as if an applicant is on mechanical ventilation or a feeding tube," Tremblay says.

Do you have to tell life insurance companies about your disability?

Yes. You should never lie on a life insurance application. Insurance companies perform in-depth underwriting investigations before issuing a policy. It's very unlikely that they won't find out during that process.

And if they do issue a policy based on false information and the disability you didn't mention later leads to your death, the company could deny the claim. 

There is one exception: if you apply for a guaranteed issue life policy and there are no medical questions and no exam, you don't have to disclose the disability. That's why these policies cost more.

Where to start when buying life insurance

The place to begin is to check with your employer or HR department to see if your company offers life insurance programs. You could also work with an advisor or agent who can shop the marketplace on your behalf, understanding your specific needs.

"When working with a broker, advisor or agent, there is key information you should ask to help you in the decision-making process. You should ask about their expertise, the cases they've written and examples where the insured was disabled and their approach to process and managing the marketplace,” Nichols says.

He also suggested considering using a presale application, a form that provides your basic data and medical history. This allows the insurance company to respond with a preliminary offer, subject to formal application and medical requirements. The presale application is a key step in that it provides the insurance companies with enough information to provide an opinion on acceptance and risk.

Nichols shared other pieces of advice:

  • Get quotes from multiple carriers.
  • Always fully disclose the answers to the questions being asked. Red flags go up immediately if the insurance carrier learns that the answers may not be accurate or fully disclosed.
  • Leverage the expertise and resources of an advisor as opposed to trying to go it alone.

"Many successful advisors have long standing relationships with insurance carrier underwriters reviewing your application and making the decisions on acceptance and the rating classification. On occasion, the advisor may be able to negotiate with the underwriter, if there is an opportunity to improve the offer, such as a better classification table," he says.

Types of life insurance

There are two overarching types of life insurance policies: 

  • Term life insurance offers coverage for a specific number of years, such as 10 or 20 years. If you outlive your policy, your insurer won't have to pay a death benefit.
  • Permanent life insurance, such as whole life, is a policy for life. As long as you pay your premiums, your survivors will receive a death penalty when you die. These plans also have a cash value component. This allows you to tap into your policy, though an insurer will subtract that money from a death benefit.

If you’re denied, you can usually find a different type of policy. For instance, if an insurer rejects you for a permanent life insurance policy, you may want to try a term life policy instead. 

Beyond term and permanent life, there are other options to help your loved ones. One is final expense or burial insurance. These policies are often guaranteed up to $25,000 with no medical underwriting. Final expense and burial insurance are available to people regardless of health status, so that’s always an option.

Another possibility for disabled people is to get life insurance as part of an employer group. The company may offer and even pay for life insurance. You may additionally get to buy additional life coverage through that insurer. Employer-based life insurance usually has smaller payouts than an individual policy. Another downside is you lose coverage if you leave the job. However, an employer plan can be an option if you can’t get life insurance coverage elsewhere or want additional coverage.

Shop around for a life insurance policy

Make sure you're getting apples-to-apples comparisons when getting life insurance quotes. Remember, the higher the risk, the higher the premium. 

Compare as many quotes as you can, and make sure that you have been honest when requesting them. If not, the actual premium that's returned after underwriting is done might be a lot different.

As mentioned above, guaranteed issue life insurance is always an option if you really need coverage but don't think you will pass a medical exam.