Unfortunately, not everyone who applies for life insurance will qualify. If you’ve applied for coverage but have been denied, it could be for a variety of different reasons. In this post, we’ll talk about how life insurance works and some of the common reasons why applicants are denied.
How Does Life Insurance Work?
Life insurance is designed to provide the policyholder with coverage in case tragedy strikes. Should a death occur, the beneficiaries will receive a death benefit equal to the face value of the policy.
Since the life insurance company is always at risk of paying out these benefits, it’s in their best interest to only provide coverage to applicants they feel will have the greatest chances of living a long life. Therefore, they will often subject applicants to extensive questioning and medical screening before they agree to sell them a policy.
Why You Might Be Denied Life Insurance
If the life insurance company believes that there’s a chance you might pass away prematurely, then they will most likely deny your application. Generally, this will be because of one of the five following reasons.
1) Pre-Existing Health Conditions
Unfortunately, people who’ve developed a chronic illness such as diabetes, cancer, heart disease, etc. statistically have shortened life expectancies. For this reason, It’s best to always apply for life insurance as soon as possible while you’re young and healthy.
2) Your Current Health
Even if you don’t have any medical issues, your current health status could be detrimental to your ability to qualify for life insurance. These might be qualities such as your age, weight, and whether or not you smoke. For instance, while someone who’s obese may not currently have any medical issues, there’s a very good chance that they may develop them in the near future. This is a risk that the life insurance company may not be willing to take.
3) Hazardous Occupations
Generally speaking, life insurance companies do not like to insure people who work in hazardous situations such as:
- Military personnel
- Airline pilots
- Construction workers
- Structual iron and steel workers
- Truck drivers
- Farmers and ranchers
- Fire responders
The same can often be true for your hobbies as well. For example, if you’re someone who likes to go bungee jumping or skydiving, this would also be a red flag for the insurance company since they would see these activities as voluntarily putting your life at risk.
4) Financial Limitations
If you apply for a life insurance policy that far exceeds your annual earnings, this can be a reason for denial. The usual rule of thumb is that the policy’s face value should be about 10 to 12 times your income. Therefore, someone earning $50,000 per year would not qualify for $10 million worth of coverage.
5) Previous Denials
Believe it, or not, being denied life insurance in the past can cause you to be denied in the future too – even if you attempt to apply with a different provider. This is because life insurance companies share a common database about their applicants and customers. Unfortunately, the only way around this is to purchase a policy where there is no screening and acceptance is automatic (such as guaranteed issue life insurance).
The Bottom Line
There are many reasons why you might be denied the ability to purchase a traditional life insurance policy. Between your medical condition, a hazardous work occupation, or ven being denied previously, life insurance providers will only agree to work with applicants whom they believe will have the greatest life expectancies.
If you’ve ever been denied a traditional life insurance policy, don’t worry – you’ve still got options such as a guaranteed issue life insurance policy. You could also attempt to improve your health or reduce the desired death benefit in hopes of qualifying.