Why Does Life Insurance Take So Long?
All Insurance companies need information in order properly price your insurance coverage. They use a variety of data points to determine where you fit on their actuarial table which gives them your price for coverage. See our explanation of the ratings ladder below.
For Auto Insurance companies, all the information they need to make that decision is available in seconds from the State Motor Vehicle databases. In seconds they know everything they need to know about your driving history to determine a price.
For Life Insurance, if you are young and healthy, the insurance companies also have access to most, if not all, the information they need to price your coverage. This includes MIB (Medical Information Bureau) reports, Pharmacy/Prescription Database Reports, and in some cases even Lab Test Results. Many insurance companies are offering quick turn around service, including same day coverage if this information is quickly available. You do have to be careful, though, because most of the folks advertising quick or same day or instant coverage are selling insurance products that have 30-50% markups in exchange for that quick turn around process.
If you are little older or have medical impairments like diabetes, heart disease, past cancers, sleep apnea, etc. the process can take much longer because of how long it takes to retrieve Medical Records from your Doctor. The time required differs by Doctor's office and due to HIPPA laws most of your tests and results are not with one Doctor but may be spread over a few different Doctors or facilities. The insurance company doesn't know who all the facilities are until they get the first set of records, and that often take 3-4 weeks or longer.
It takes that long because the records are usually in paper form and need to be copied and sent to the insurance company. Doctor's offices don't want to be the medical records distribution business so they contract with Copy/Retrieval Services who send people out to copy those records (for a fee), and send them to the insurance company. In some cases your doctor may provide you an online portal to access your records. This can be helpful and drastically cut down on the time needed to get the records, but often these only include a small portion of your records. They may be missing copies of actual testing done which the insurance company will want to see themselves.
In many cases, a person in their 50's or 60's starts the underwriting process by providing their primary care doctor information, thinking that he/she will have all the information needed. But after the 3-4 week process above, the insurance company sees that your primary doctor referred you for a sleep study for example. The next note says nothing about the results of the study. The insurance company now requests the name of the Doctor that did that study, so they can take a look at it. As the applicant you may think, that study was normal, why are they asking for it? Or my doctor mentioned it, but I didn't think it was that big of a deal, so I never followed up, why is this important? First, there must be some reason your doctor mentioned it, and if it was normal, they will need to document that for their records. Untreated Sleep Apnea could cause a rate increase or even a decline, but a normal study would require no rate increase. Insurance companies can't price unknown information. They can only put a price on a known health risk. Secondly, if you didn't follow up, it could look like you don't follow doctors instructions, and make you more of a health risk. Or you could ask your doctor to clarify the note regarding the necessity of the sleep study. This is just one example of thousands we could give.
Either way, the outcome of the above question could be as easy as a phone call to your doctor or take another 3-4 weeks to get a response. You can easily see how the process can snowball from 3-4 weeks, to 6-8 or 12 weeks. This can happen with even the most well intentioned applicant and agent.
We typically see frustration from our clients about the 2nd time they are asked for additional Doctor's information. A common reply is, "they are just trying to decline me", or "if I wasn't healthy, wouldn't you see that in my doctors reports that you already have?" Some even throw in the towel after a few weeks in the process.
The truth is that the Insurance Companies want your premium dollar. Your agent doesn't get paid anything on any policy unless the premium is paid. Insurance Companies don't make any money in most cases until you have paid 3 years of premiums. Their costs to underwrite you, reserve funds to protect your death benefit, and administrative and regulatory costs are very large. Both Big Lou and the Insurance Company want you to get insured, which is why it is important to provide as much information about any Doctors or Hospitals or Testing that has been done in the last 10 years when you apply as it saves a lot of time down the road.
Next, you want the insurance company to have as much information as possible to protect your beneficiaries. Every life insurance policy has a 2 year contestability clause. Generally, they can contest a claim for 2 reasons. Suicide and factual misrepresentation. Factual misrepresentation occurs when an applicant doesn't provide information that would have affected the policy approval in some way. If you forgot to tell the insurance company that you take cholesterol medication, and you pass away in the first two years from a heart condition. They could relook at your medical records to determine if that would have made a difference in your pricing. We use this example because cholesterol medication rarely makes a difference in insurance, the actual cholesterol number does, and the insurance company would have had that number from your exam or testing with your doctor anyway. No harm no foul.
Now, what if you forgot to mention that you vape marijuana, and passed away within the first two years? The insurance company could contest that claim and say that if they had known about this vaping they would have increased your pricing or rated you differently. They could decide that you should have paid twice the premiums you were paying, and could therefore decide to lower your death benefit based on the actual premiums you did pay. Not a good outcome for your beneficiaries.
Finally, what if you "forgot" to mention that you had a triple bypass four years ago, and then die from a heart attack 1 year into your policy. In this case they could contest the claim, and not pay any benefits out. However, in this scenario, if you died in a car crash, they likely would not contest the claim.
The process of getting all this information is necessary to protect your beneficiaries and the insurance company. Our Job is to make this process as fast an easy on you as possible that means getting all the information necessary to get you approved. No information is extraneous. Everything we ask has the goal of getting you insured.
What Rate Class Will You Get?
(General Guidelines - There Are Exceptions & TermProvider Gets Them)
The Ratings Ladder
The rating you receive on your Life Insurance Application will not be done just by negotiating. In our world of technology, the Insurance Companies have a ton of information available about your health profile. This includes your doctor's records, lab results including the labs you do for the insurance exam, your prescription history, and information contained in your MIB (Medical Information Bureau) report. With information like this on millions of insureds over decades, they have a really good idea about which health profile factors are a higher risk. They compile the information above and assess your risk factors and that gives them a price for the amount and term of insurance you have requested. Now, it is possible that an underwriter could miss something and price you too high, and that is where Big Lou can come in and help the underwriter see your profile in a better light. Each insurance company has a different rating's manual and they each look at every health profile differently. They each have niches where they are better than others. For some insurance companies this could be weight, or diabetes, or sleep apnea, or anxiety, or hundreds of other issues.
Finding the right insurance company is what Big Lou specializes in.
Once the underwriter has reviewed your profile they will place you on the "Ratings Ladder" as we like to call it. This ladder has 12 rungs on it, with rung number 1 being the least expensive and rung number 12 being the most expensive. For every age and gender there is a separate ladder. Every 50 year old male is on the same ladder, and every 50 year old female is on their own age/gender ladder. Everyone starts at rung number 4 and it is called the Standard Rate. Looking at your specific health profile, the underwriter will find credits and debits and move you up and down the ladder until you settle at your final rung. A diabetic may be debited and moved to rung 6, but credits may be found in their control of diabetes or weight or cholesterol that can move them back to rung 3 or 4. Big Lou's job is to help the underwriter find as many credits in your health profile to get you placed on the lowest rung of the ladder possible.
Common names for the rungs on the ratings ladder are below.
Preferred Plus. Rung number 1
Clients with minimal medications and no significant health history. 2% of clients get this rate.
Preferred. Rung Number 2
Only For clients who take minimal medications and with very mild health conditions. Blood Pressure, Cholesterol, and other minor conditions. 5% of clients get this rate.
Standard Plus. Rung Number 3
This rate class allows a client to be a little overweight, and use medications for depression, sleep apnea, some forms of well controlled late onset diabetes and cancers. About 13% of clients get this rate.
Standard. Rung Number 4
This is generally the best rate class available for those 20 - 30 lbs overweight or more, diabetes, cancer history, and heart conditions. About 30% of people qualify for this rate class.
Table Ratings. Rung Numbers 5-12
The other 50% of approved clients fall into one of 8 table ratings. Basically each table assessed adds a 25% rate increase off of the standard rate class. If a standard rate premium is $1000 per year, a Table 2 rate class would be $1500 (50% more). These rate classes are for less well controlled diabetes, many heart conditions, narcotic pain medication long term use, and many more less well known conditions. Talk to your agent about your specific health conditions to get the most accurate quote.