In part one of this two-part series, we looked at the often-misunderstood underwriting terminology “standard” and “preferred” and how results from your insurance exam, your physician’s statements and other data can influence the amount of premium you will pay by classifying you into one of these underwriting classes. We also touched on the impact of a proposed insured’s tobacco vs. non-tobacco history as well as how the “casual” use of nicotine may be more acceptable today than previously. Lastly, we examined what it means to be “rated,” “postponed” or given policy modifications such as “exclusions” or “flat extras.”
In part two, we will continue revealing other important issues in the underwriting process so your future underwriting results may be more understandable and predictable, perhaps saving you thousands of dollars on your life, disability and long-term care insurance purchases over a lifetime, based on your situation.
Have you ever wondered what the insurance companies do with that medical information you and your physicians provide during the application (underwriting) process? Has prior medical or other information you provided ever come back to haunt you? If so, then you should know something about how the company called MIB Group works to store your medical history from prior insurance applications and how that information may affect your future purchases of individual life, health, disability and long-term care insurances.
Membership Information Bureau
MIB (Medical Information Bureau) Group is a membership corporation owned by member life insurance companies in the United States and Canada. Its job is to gather and retain information on people applying for individual life and health policies, disability and long-term care insurance. If you are applying for coverage, your insurance carrier can access this information for use in underwriting your current application but only after you have signed the appropriate MIB (and HIPAA) pre-notice authorizations.
What information is in your file at the MIB? First, any information that was gathered on you in the past from an insurance application would be in the MIB database. However, and this is generally not known by most applicants, the data from your previous underwriting(s) is not spelled out in a narrative form. Instead, it is stored in an encrypted code covering broad categories such as medical conditions, medical tests, motor vehicle report, hazardous avocations, etc. No specific reports appear in the MIB nor are there any actual medical records. The general codes might be, for example, in the 500-series for heart conditions, 300-series for mental or nervous disorders, with numbers within each series specifying types of heart conditions — for example, #535 for myocardial infarction.
You may wonder how long your prior data remains in the MIB and if you will be declined or rated based on that data. The MIB purges your data from its database after 7 years. Further, according to MIB’s Web site, “The information in the person’s MIB file is used only as an ‘alert.’” In other words, only your codes are revealed to the current underwriter, and no underwriting decision can be made solely on the basis of the MIB information provided.
Further, no flat extra, rating, declination, postponement or other adverse underwriting result can be imposed solely from your MIB data. The current underwriter can only take action after obtaining new medical history or other pertinent information about you, but the MIB information does put that underwriter onto the trail of issues that have come up before (within last 7 years).
Determining and disputing MIB errors
“But what if my data is incorrect in the MIB database,” you ask? This can and does happen. In fact, it happened to me when my primary care physician made this side note in my medical file: “mitral valve prolapse?” He was only conjecturing, but the mitral valve prolapse condition showed up as factual the next time I applied for disability insurance, causing me to be declined. Although a routine echocardiogram disproved the MIB entry, I still wanted to remove the data from my file. I requested a reinvestigation form from the MIB and got it cleared up. So if you receive unfavorable underwriting results and disagree with the reasons and if those reasons are from the MIB, you can first discover then dispute them. You can request an MIB file on yourself by calling, then providing the answers to personal identifying questions.
A physician’s caveat: What happened to me could have been avoided had my primary care physician given some explanation as to his noting “mitral valve prolapse?” in my medical file. I urge health care professionals to be careful when you record undiagnosed hypotheticals in your patients’ files without explanation or follow-up notes, as those innocent notes may come back to haunt your patient someday, just like they did in my case.
I recommend visiting the Web site www.mib.com to find out more about the MIB. Once at the site, click on “Consumers”, then “MIB Faqs” for a more detailed explanation of how the MIB has already and will again figure into your next application for life, health, disability and long-term care insurance.
Other factors affecting underwriting results
There are a lot of other issues in underwriting that can have an impact on how your final rate is determined. Not all medical conditions are treated the same for all the types of life, health, disability and long-term care underwriting. For example, a pre-existing diagnosis of tennis elbow for a surgeon would affect disability and long-term care underwriting much more than it would life insurance underwriting. Use of a cane is a killer for long-term care coverage but not for life insurance. On the other hand, private pilots face greater scrutiny and more expensive results applying for life insurance than for disability insurance. So what might be causing you problems in one area does not automatically translate into the same results with another type of coverage.
In many cases, the length of time you have had a prior condition and the intervening medical history can determine how well or how poorly you will fare in underwriting. For example, you and your partner apply for life insurance. Both of you have high blood pressure. You have been treated for the high blood pressure for 10 years and, with medication, your readings have been normal for several years. Your partner just found out he has high blood pressure. There is no real history of treatment here and no way to know if he will respond to medication or to special dietary requirements to quell the problem. All other things being equal, you may be able to qualify for preferred rates, while your partner may receive a table rating or flat extra, both of which may be reconsidered later with positive treatment.
You may have a lot of positive factors in your health history that can serve to cancel out possible negative factors. This is the system of “debit” and “credits” in the underwriting process. For example, an extremely positive health factor such as ideal cholesterol may be enough to cancel out a higher build (height-to-weight) ratio. So if your underwriting results are less than satisfactory and you feel your own health history is exceptionally clean – yet you did not qualify for the preferred plus or preferred rates you expected — then you might want to search for another carrier who might credit you more for your positives than the existing negatives in your history.
Summing the risks
Also, sometimes in underwriting two plus two does not equal four. For example, I have a client with a history of sleep apnea (rateable by two tables, perhaps) and controlled type 2 diabetes (also rateable by possibly 2 tables). He is going through underwriting as I write this. The two conditions are somewhat mutually exclusive so that, in not affecting each other, the final table-rating may not be four but only possibly two (and not “summing” the risk of the two impairments). Most underwriters would view it this way; however, you may be encountering one who does not and who is offering a table four instead (the key is the controlled aspect of the diabetes). Have your broker search for one who will see it your way, as long as the carrier is highly ranked financially.
When determining an underwriting status, uncertainty is a negative. If you have a recent or prior condition that was not diagnosed as anything specific, then you may experience difficulties in getting any approval — let alone a satisfactory approval. I have seen situations in which an individual had several fainting spells during a short span of time, was taken to the hospital twice, but nothing was forthcoming as a definite cause. A mystery, he was told. But that might be bad news when being underwritten.
Imagine being asked to insure a building where smoke has started pouring out of the basement a couple of days each month, but the local fire chief cannot pinpoint the reason. Would you risk your money against a fire loss for this building? Probably not. Neither is it likely that an underwriter would when your medical history is spotty without any indication of cause.
Avoid certain things
You can help yourself through underwriting by doing or avoiding certain things when you are getting medically examined. For example, you could fast for 4 to 8 hours before your exam and schedule the exam for early in the morning. Limit salt and high cholesterol foods, as well as alcoholic beverages 24 hours before your exam; ditto for nicotine products and caffeine. If you are a serious smoker, avoid smoking for 30 to 60 minutes before the exam. Drink a glass of water 1 hour before the exam and get a good night of sleep the night before.
Women should let the examiner know if they are experiencing menstruation (can cause elevated blood cells in the urine sample, thus throwing off other urinalysis results). If you are driving to the exam center (as compared with having your exam at your home or office), show up early to avoid the stress of last-minute rush. Schedule the exam when stress levels are normally low. For example, if at the office, get it done early before accumulated work stress can affect your results; if at home, make sure someone is watching the kids so you can relax.
If you have diabetes, schedule your exam no earlier than 2.5 hours after a meal, avoiding sweets or sugars after the meal. Empty your bladder right after your meal, and drink one to two glasses of water before the exam. Review your blood readings for the previous couple of weeks to see when your blood sugars are at their lowest level, then set up the exam for that time of day. Keep the same routine to obtain the same results. If you suffer from hypertension, avoid stimulants such as coffee, alcohol and cigarettes, and schedule your exam early in the morning (same if you have coronary or EKG problems). Take your usual medications. If your first blood pressure reading is high, ask the examiner to take at least one or two other readings perhaps 5 or 10 minutes apart. Show up early and relax. Remember your deep breathing techniques from Lamaze to foster that state of relaxation.
Clients often ask if an upcoming complete physical by their doctor can substitute for an insurance physical. Generally, the answer is no (but some companies will accept this). Further, certain tests such as EKGs from your complete physical will not need to be duplicated. However, my advice is that you may want to postpone your regular physical exam (assuming urgency or a serious medical condition is not an issue) until after your underwriting is completed, as a complete physical may involve more extensive testing than the insurance physical, such that unnecessary, and possibly negative, results may occur from the complete physical that would not have been unearthed on the insurance exam. In other words, compared with a complete physical, you always go with the path of least resistance, and the insurance physical will generally be the lesser of the two.
Your broker should be your advocate
In part 1, we alluded to the role your agent or broker should play when applying for life, health, disability or long-term care insurance. In addition to helping select among the right products for you (that are not always necessarily the cheapest) with the best carriers for your insurance needs, your broker should be in your corner when initial underwriting results are not as favorable as expected. Among the actions he/she should take on your behalf are one or more of the following:
Go to the marketplace using a preliminary application or informal inquiry to allow more than just one or two companies to look at your medical and other significant history. This can be done at the outset if you have questionable prior history or can be done post-underwriting, for example, if you come back at standard rates instead of preferred or preferred plus rates, or even worse, rated, postponed or declined.
Contact the underwriter, if permitted, with any facts about your history that may contradict or clarify factual reasons that have affected or will affect the results of your underwriting. Also, the underwriter should be made aware of any subjective information or background that may act in your favor. For example, suppose you have had a clean medical record, but you have just gone through a difficult divorce or perhaps had a close relative such as mom or dad die. Your doctor prescribed certain medication to calm your down so you could deal with the grief or stress. Your broker can help you by informing the underwriter of the situation and offering a broader perspective for the underwriter to consider. Therefore, what might have appeared to the underwriter to be a very recent diagnosis of depression or stress might then be understood as normal and temporary grief-related treatment.
Explain to you why certain underwriting results have occurred. First, though, you need to realize that the broker may not be privy to the specifics of your medical history, as modern privacy regulations may prohibit the underwriter from discussing details with the broker. On the other hand, many underwriting decisions are not medical in nature and, therefore, less private. You can be told why you have encountered certain difficulties in getting more positive approval.
Let us assume that you were offered only $10,000 a month of disability coverage instead of the applied amount of $15,000 a month. If your specialty limited the coverage, you should know that. If you have too much unearned income that affected the results, you should know that. Sometimes the results are extremely logical when you understand the rules that dictated that result. You may not like the explanation your broker gives you, but if he or she is leveling with you. You will then be aware of exactly what has happened and be less inclined to think something subjective affected your underwriting bottom line.
Help speed up the underwriting process. Getting atending physician’s statements back from some medical offices is excruciating, especially if the doctor uses a copy service that only comes in 1 day per week. Your broker may ask you to call your physician’s office to request your file be sent because your doctor’s staff may respond quicker to you – the patient – than someone from the broker’s office. If you think the process is taking too long, check with your broker. He or she can fill you in on why the delays are occurring.
Follow up on paperwork that might be required after approval. I recently encountered a physician whose issuance of disability coverage required that two prior policies be discontinued. The broker did not help the client with a letter to the prior carrier canceling those policies, and they remained in force. As a result, the new coverage would never have paid a claim if the physician became disabled, despite 5 years of non-refundable premiums. The broker earns a commission; he or she should work on your behalf until there is nothing left to do.
Lastly, your broker needs to fight for you sometimes to obtain the best results possible. He/she needs to carry to the underwriter the strongest possible arguments for influencing potential underwriting in your favor. This can come from the broker’s familiarity with the carrier and with the specific underwriter. Underwriters will listen to arguments that can be defended in the underwriting file, and sometimes they will make business decisions if given enough clear and compelling reasons to do so. According to underwriter Allison Ford of the Lincoln Financial Group, “A good underwriter should be willing to consider any relevant information as to why the company should value a client’s business when making a final pricing decision.” Ford adds, “Oftentimes, a broker will include a cover letter with the application that outlines the need for the coverage and any other information that may be applicable to the case. This cover letter can really make a difference.”
In the final analysis, you must be convinced that your broker has done everything possible to get the best underwriting results; otherwise, search for another broker.
Economic loss and financial underwriting
When you apply for life or disability insurance, besides looking at your complete medical history, insurers will examine your financial data and background as well. The reason is that it matters. As an extreme example, if all of your income were to be unearned, say from a trust, you could not get any disability insurance because if you got disabled, you would suffer no economic loss; the trust income would continue unabated.
For life insurance, underwriters use an age/income table to judge the limit on face amount you should be offered. For example, the younger you are, the greater the factor permitted. As a hypothetical example, one carrier’s table may use a 45 times income (earned) factor for proposed insureds aged 45 or younger. So if you are 35 years old and earning $100,000, you could reasonably ask for $4.5 million of face amount. The factor decreases with age such that between ages 56 to 65 years, the same carrier would issue only 10 times your earned income. Certainly other facts may dictate additional amounts of coverage such as outstanding debts, specific tax issues such as estate taxes, business insurance situations such as buy-sell insurance, key person insurance, etc.
The bottom line is that the life or disability insurance amounts you request must be reasonable in terms of the potential economic loss you or your family, business or estate might sustain if you died or became disabled. If you were permitted unbridled access to whatever amount of insurance you wanted and could pay for, the danger of over-insurance – and the moral risk that it generates – would be real. This is why, for example, you can only insure a certain percentage of your earned income, such as 60% to 65%. If you became disabled, the benefits could possibly avoid additional taxes (if you have paid income tax on the dollars used to pay the premium), so that 65% of your income, on an after-tax basis, roughly equates to your after-tax income when working. There is still a gap (in a 25% overall income tax bracket, you would be earning 75% after-tax), which is considered your incentive to come back to work, as viewed by the disability carriers. Stated another way, if you could receive 100% of your pre-disability income tax-free, why go back to work? That is why the maximum amount of coverage is reduced.
If, on the other hand, your disability benefit were taxable (think group long-term disability in which your employer pays the premium), you could get more coverage, perhaps up to 75% of your earned income because of the taxes due on the benefits. Thus, insurance is not for profit; it is for replacing lost dollars due to your death or disability or incapacity (long-term care).
Insurability is the term used by agents/brokers and carriers to denote your ability to qualify for life, health, disability and long-term care insurance. The inability to obtain coverage is conversely denoted as “uninsurability.”
There is a saying in the insurance business that goes like this, “Your insurability is what buys the insurance; your money only pays for it.” As physicians, you see patients every day whose ability to buy life or disability insurance might have been diminished or lost completely the moment you diagnosed whatever condition afflicts them. Insurability, then, can be fleeting and there is no way to tell in advance when it will end.
What is problematic about insurability is that when you have it, you think you will always have it. Younger people may think they are immortal. Life is good and good health is forever. But life is not fair, and health changes, deteriorates and disappears. To those of you who feel you can wait forever to get the life insurance you think you probably need or the disability insurance you have put off buying, I offer you this analogy: Why should you carry a spare tire in your spouse’s car? She does not need it today because she did not need it yesterday. So take the spare tire out of her car. It is bulky, weighs a lot and because it was not needed so far, it should not be needed tomorrow or next month or next year. So toss it.
Well, just like carrying the spare tire for future needs, your future insurability has nothing to do with your past insurability. Because you have always been in good health does not guarantee you a day of good health starting tomorrow. So consider locking up your insurability while you can.
With some whole life or universal life policies, you can lock in your future ability to buy insurance with a “guaranteed insurability rider” offered at an additional charge; same with your disability insurance. This is especially important to young doctors whose highest income-earning years are still to come. You may qualify for only a small amount of coverage today, but with a “future insurability option” built into your policy, you can buy coverage later with no evidence of medical insurability needed (you still must qualify financially, except for automatic increases of 5% per year for 5 years).
When buying term insurance, consider what needs you may have in the future and insure them today. A healthy 35-year-old man can get a $1 million face amount 20-year term (preferred) policy for roughly $600 per year (preferred plus would be lower). So price should not be the issue. If you need the insurance for a temporary need, say 10 years, consider stretching it a bit and maybe go 15 years if you can afford it, just in case your needs change. Consider two policies if different parts of your financial needs cover two different time periods, such as 15-year term until your children finish college and a 20- or 30-year term to cover your spouse’s future income/retirement needs.
Lastly, when you buy term insurance, consider whether it has as long a convertibility option as possible, so you can change your term coverage to permanent coverage without medical questions should your health deteriorate and the term insurance be on the verge of running out. It is what I did when I found out I have type 2 diabetes, so I would forever be a preferred, non-tobacco rate.
Check with your broker about getting coverage for your young children, either a decent face amount, such as $250,000, or universal life with a guaranteed insurability rider. As parents, we do not want to think about a child dying; but then again, as parents, we can help our children later by locking in their insurability – and forever lower cost – at young ages.
We covered a lot about the underwriting process and how it affects you (and your patients). We have gotten the Wizard of Oz out in the open, pretty much. Space did not permit me to examine every aspect. However, I hope you can use this information wisely to improve your chances of receiving the best rates available for life, disability or long-term care coverages the next time you apply.
As I offered in part one, if you have a health condition for which you would like to discuss present, past or future underwriting results or possibilities, please feel free to e-mail me at email@example.com (no obligation).
For more information:
- Part one of the series can be read in the March 1, 2008 issue of O&P Business News or read online at www.oandpbiznews.com/200803a/fs2.asp.
- Kenneth W. Rudzinski, CFP, CLU, CHFC, CHRC, CASL, CAP, is a registered representative of the Lincoln National Advisors Corp. Securities and advisory services are offered through Lincoln Financial Advisors Corp., a broker/dealer (member SPIC), and registered investment advisor. Insurance is offered through Lincoln affiliates and other fine companies. He can be reached at 2036 Foulk Road, Suite 104, Wilmington, DE 19810; 866-529-1320; fax 302-529-1324; e-mail: firstname.lastname@example.org.
- Lincoln Financial Advisors Corp., or its representatives, do not give tax or legal advice. The information in this article is from sources deemed reliable. This information should not be construed as legal or tax advice. You may want to consult a tax advisor regarding this information as it relates to your personal circumstances.