Every now and then you’ll come across a client who wants life insurance coverage but is concerned about their eligibility. While this happens regularly in the insurance industry, as an insurance agent it’s important to help high-risk life insurance applicants understand their options for obtaining the coverage they need to live a happy and secure life.
Quick Links
- Understanding High-Risk Life Insurance Classifications
- Factors That Impact Life Insurance Eligibility
- Solutions for Your High-Risk Life Insurance Clients
Understanding High-Risk Life Insurance Classifications
Your goal as an insurance agent is to help clients find coverage that’s right for them. But what about clients who are deemed high-risk? These are people who have a lifestyle or an underlying medical condition that impacts their eligibility to receive life insurance coverage. In these circumstances, you might need to pivot to high-risk life insurance policies or suitable alternatives.
High-risk life insurance, like any other life insurance policy, provides coverage for policyholders by ensuring access to benefits that can help loved ones stay financially secure in the event of a policyholder's passing.
However, these policies tend to have higher premiums due to the risks associated with the policyholder. And, with these risks in mind, insurance underwriters then assign a rate classification to high-risk applicants which helps determine premium rates.
When understanding the rate classifications, it may be helpful to think about it in terms of a spectrum. On one end of the spectrum are the super preferred applicants which include people who are in near-perfect health. On the other end are substandard applicants, which are those who have significant health conditions impacting their ability to receive coverage. Between the two ends are a variety of other classifications that range based on health and medical history.
- Super Preferred: This risk class is for an optimal applicant, someone who doesn’t live a risky lifestyle or have medical issues. This type of applicant may also have favorable habits, such as being a nonsmoker and exercising regularly. While a small percentage of applicants qualify into this classification, these individuals tend to receive the lowest premiums.
- Preferred: Preferred applicants are also in good health and have a relatively low risk of mortality. They may have some minor health issues or a family medical history that is not as optimal as those in the super preferred category. However, their overall health status is still considered excellent, and they qualify for lower premium rates compared to standard classifications.
- Preferred Standard: This category includes applicants who are in good health overall but may have slightly higher risk factors compared to preferred applicants. People who are identified as preferred standard have well-controlled medical conditions or habits that pose a slightly increased risk, such as cholesterol levels slightly above the preferred range.
- Standard: Standard applicants are considered average risk. They may have moderate health issues or lifestyle factors that increase their risk of mortality, such as being overweight, a history of smoking, or minor health conditions like controlled diabetes. Premium rates for standard applicants are higher than the previous classifications mentioned.
- Substandard: Substandard applicants are those with higher-than-average risk factors. Applicants who fall under this classification have significant health issues, a history of serious medical conditions, or hazardous occupations or hobbies. Substandard applicants are charged higher premiums than standard applicants to compensate for the increased risk they pose to the insurance company.
To better understand each of these classifications, it’s also important to work closely with clients to understand their health, medical history, and lifestyle. With this information, you can help match them with the right life insurance policy.
Factors That Impact Life Insurance Eligibility
First, to determine life insurance eligibility, applicants need to go through an underwriting process. This determines how much coverage an applicant is eligible for and identifies an appropriate premium amount.
Frequently, this process includes a medical exam. During the underwriting process, there are a few factors that will be accounted for and are important when determining eligibility.
Age
Age is a significant factor in life insurance eligibility. Generally, younger individuals are considered lower risk because they typically have fewer health issues. As individuals age, the risk of mortality increases, leading to higher premiums.
However, there are specific life insurance products designed for different age groups, so it's essential to consider the client's age and the available options.
With age in mind, it’s always a good idea to encourage clients to start their research into life insurance sooner rather than later. Plus, some whole life insurance policies offer cash value which grows over time.** For anyone with a family history of medical conditions, it might be more valuable to allow the value of a life insurance policy to grow by obtaining coverage while they’re at their healthiest.
Occupation
In addition to age, the nature of an applicant's job can influence their life insurance eligibility. Some occupations, such as office-based jobs, are considered low-risk, while others, like firefighters, are considered high-risk due to the inherent dangers involved with their work. Insurance underwriters assess the risk associated with the applicant's occupation and adjust premiums as needed.
Medical History
An applicant's medical history, including family medical history, plays a significant role in determining life insurance eligibility. Some conditions may arise later in life, so it’s important to review what conditions are present among close family members.
With this in mind, insurance underwriters consider the likelihood of the applicant developing health issues in the future and use this information to determine eligibility and premiums.
Lifestyle
Lifestyle factors, including smoking, alcohol consumption, and participation in dangerous hobbies, can affect eligibility as well. Smokers typically pay higher premiums due to the increased risk of health complications associated with smoking. Similarly, anyone who engages in risky hobbies or activities, such as skydiving or rock climbing, may face higher premiums or limitations on coverage.
Health
Health is one of the most critical factors in life insurance underwriting. As we’ve discussed, health is closely tied to the insurance risk classification received after completing the underwriting process. Insurance companies evaluate an applicant's current health status through medical examinations, including blood tests and medical history reviews.
Once these evaluations are complete, individuals in good health typically qualify for lower premiums, while those with pre-existing medical conditions may face higher rates or, in some cases, even be denied coverage. This, however, shouldn’t deter clients from finding coverage. Even applicants who are identified as high-risk can find the insurance coverage they need.
As independent insurance agents, it's crucial to gather information about your clients and work closely with them to find suitable options.
3 Solutions for Your High-Risk Life Insurance Clients
When an applicant is deemed as high-risk, it doesn’t mean that they won’t be able to receive the coverage that they need. In fact, this is a common misconception about life insurance. If you have a client who is concerned about their eligibility, reassure them that there are ways to ensure financial security through insurance coverage.
1. MYGAs
Though not an insurance policy, multi-year guaranteed annuities, or MYGAs, is an annuity product that provides income during retirement years. Just like life insurance products, annuities require premiums to fund the policy. And, later on, annuitants can receive these funds as a source of income when they no longer work. For people who are high-risk life insurance applicants, this can be an alternative to ensuring financial security and working towards long-term financial goals.
2. Term Life Insurance
While whole life insurance might be what your client is looking for, you might also want to have a conversation about term life insurance. This type of life insurance product remains active for a set period of time, typically just a specified number of years.
The important thing for clients to know in regards to term life insurance is that this type of policy often has higher premiums in comparison to whole life insurance. Additionally, some whole life insurance products have a cash value component, but term life insurance policies lack this feature.**
3. Guaranteed Issue Life Insurance
If term life insurance isn’t a suitable option, you might consider suggesting guaranteed issue life insurance to your clients. This type of final expense insurance policy forgoes the need for a medical exam, meaning that it’s easier to be approved for coverage. Additionally, this policy is often offered to anyone between 50 and 80 years old and only requires a simple phone interview to better understand the client’s health.
The bottom line is that a high-risk applicant doesn’t mean ineligibility for life insurance. High-risk life insurance options are available, so it’s important to provide recommendations for your clients that meet their needs. If guaranteed issue life insurance is the right fit, consider introducing your client to ELCO Mutual’s products. Silver Eagle is a whole life insurance product that can provide guaranteed coverage without a medical exam. To learn more about this product as well as ELCO’s range of life insurance and annuity products, reach out to us right away!
**Please note that ELCO Mutual does not guarantee dividends from participating life insurance policies.
