Common Reasons You Could Be Denied Life Insurance

Being denied for a life insurance policy can (and does) happen. Companies perform both financial and medical underwriting, which is the process of determining the level of risk that a particular individual represents and then categorizing that risk in such a way that the company can decide whether the risk is worth taking on for a particular fee, or premium. This protects the company from taking on too much risk across a number of individuals, thereby putting the company at risk of default if too many claims have to be paid at once. There are a number of factors that may contribute to an individual’s level of risk, and therefore, a life insurance denial. Here are some conditions and situations that insurers typically consider when reviewing your life insurance application.

You have a health condition that increases the risk of mortality.

To offer the best rates, life insurance companies usually ask you to undergo a medical examination as part of the application process. This exam may expose any number of health issues, from high blood pressure, blood sugar, or cholesterol to a history of alcoholism or cancer. Some of these conditions you may know about ahead of time; if you are undergoing treatment and your condition is managed, you are more likely — but not guaranteed — to be approved for a policy. If the exam reveals a previously undiagnosed condition, you will probably need to get it under control before reapplying.

You work a dangerous job or have dangerous hobbies.

Certain jobs and activities are just more dangerous than others. Someone who regularly jumps out of airplanes experiences more risk than an office worker. Your employment and extracurriculars have a direct impact on your insurability. In some cases, life insurance companies may refuse to provide a policy to anyone they deem too risky when it comes to their occupation or hobbies.

You have a tarnished driving record.

Each year, over one million people are killed in traffic accidents, making them a leading cause of death for Americans between five and 29 years old. If you have a handful of speeding tickets or have a been charged with a DUI, life insurance companies are going to consider you a riskier investment than someone who has a clean driving record. Depending on how extensive your record is, this could lead to you being denied a life insurance policy.

You lied on your application.

When initially applying for life insurance, it pays to be as truthful as possible. If you lie on your application — for example, if you wrongfully state that you are a nonsmoker or have no diagnosed medical conditions and underwriting proves otherwise — a life insurance company can choose to deny you coverage.

You have no insurable interest.

If you want to take a life insurance policy out on a loved one, but there is no evidence that you will experience financial loss in the event of their passing, a life insurance company may deny your application. Life insurance exists to protect loved ones should the insured pass on, but if there is no financial risk from which the loved ones need to be protected financially (e.g., the insured paid none of the bills, did not owe any debts, and has enough assets to cover burial arrangements), the insurance company may determine that you lack an insurable interest that would justify issuing the policy.

Note that this does not apply to stay-at-home spouses or parents who contribute time and energy to responsibilities like childcare, transportation, household management, and home administrative tasks. These unpaid responsibilities would need to be outsourced if the stay-at-home spouse or parent were to pass away. This could leave the remaining family members in a financially tight situation without the right life insurance policy in place.

You are financially risky.

Life insurance companies often look at an applicant’s finances, in a process known as financial underwriting, to determine whether the applicant can pay their premiums and if they are over-insured. Financial information like income, assets, expenses, debts, credit history, occupation, and other existing life insurance policies are all taken into consideration when determining whether you are too financially risky to insure. Many times, a higher risk factor equates to higher premiums and even ineligibility for certain policies.

A company could also deny additional life insurance coverage if they determine that you are over-insured, meaning that the true need for additional coverage isn’t there. You can ask for a financial needs analysis from a representative or use our calculator to get a good idea of your total coverage needs and prevent the possibility of denial for lack of justification on the coverage amount.

You are too old.

It is a fact of life that the older you get, the more likely you are to reach the end of your life and pass on. At some point, death becomes sufficiently imminent that life insurance companies will not issue a new policy, often when the insured hits 85 years old. It is important to apply for a life insurance policy when you are young and healthy to get the best rates and to ensure the best chance of getting coverage.