Denied life insurance? What’s next?

Why was my life insurance application denied?

It can be incredibly frustrating to be denied a life insurance application, and it can happen for several reasons. The most common reasons insurers deny life insurance applications include:

• Health risks
• Risky lifestyle choices
• Financial concerns
• Dangerous occupation

If you are predisposed or have a serious medical condition, like heart disease or diabetes, insurers may see you as too much of a risk to insure. This also applies if you engage in high-risk activities, such as skydiving, motor racing, and recreational drug use.

Another reason could be your financial history. If you have a poor credit score, filed for bankruptcy, or have a criminal record, these factors contribute to a denial. In less common cases, it can also come down to a clerical error or incorrect information. It's important to review the reasons provided in the denial letter so you can address any issues when applying again.

What to do if your life insurance application is denied

If your life insurance application has been denied, there are several steps you can take:

1. Review your denial letter: You'll receive a denial letter once you've been denied. This should list the reasons you've been denied so you know what to address if you apply again. If there's any incorrect information, you can discuss it with your insurer.
2. Ask for more information: Ask for a clear explanation of why your application was denied. This will help you understand the specific reasons and address any inaccuracies in your application.
3. Explore alternative options: Certain providers and policy types may have less strict underwriting. A group underwritten life insurance policy or a salary continuance insurance policy will guarantee you certain levels of cover if you're an Australian resident aged 18-70 and often avoid traditional health assessments. You can find these types of policies through life insurers, your superannuation fund, or employer.
4. Lifestyle changes: Take steps to improve your health such as adopting a healthier diet, cutting out recreational drugs, or any other steps to manage chronic conditions. This might make you more favourable in future applications.
5. Check if you qualify for group life insurance: See if your workplace or super fund offers a group life insurance policy as part of your employment. These policies are bought in bulk by organisations and usually require minimal or no personal information to apply. While it is also typically cheaper, it won't be tailored to your needs.
6. Work with an advisor: A life insurance advisor can help you find a different insurer that may be willing to offer you cover, even if another provider has turned you down. Just remember, how much they can do for you will depend on the specific reason your cover has been refused. For example, if you have diabetes, you might still face challenges finding a policy.

How underwriting works in life insurance

Before you can get cover for any insurance policy, you'll need to first go through a process called underwriting. This is essentially how insurers work out how much risk you present to them so that the right premium can be set.

When it comes to life insurance, the process can last from a day to multiple weeks in some cases. The type of underwriting a policy has will decide how much information you need to provide and any additional steps you need to take, like a medical exam. Generally, life insurance cover is available with three different levels of underwriting:

• Fully underwritten life insurance
• Partially underwritten life insurance
• Group underwritten life insurance

Underwriting plays a significant role in deciding whether or not you'll get cover and how much you pay for life insurance premiums if you are accepted. If you're considered low-risk, your premiums will likely be lower, but if you have health issues or risky habits, you may face higher premiums to cover that risk.

Fully underwritten life insurance

A fully underwritten life insurance policy means you'll need to undergo a thorough review of your risk. This can involve undergoing a medical exam and extensive medical history assessment and answering detailed questions about your lifestyle and finances.

Why could I be denied? – With a fully underwritten policy, you can be denied if the insurer finds significant health issues, risky lifestyle choices, or other serious risk factors. For example, if your insurer requires you to provide detailed medical records and undergo a thorough background check, this could reveal any past serious medical conditions. Insurers may view this as a significant risk factor, especially if it indicates ongoing health or lifestyle challenges.

Pros and cons of fully underwritten life insurance

Partially underwritten life insurance

Partially underwritten life insurance involves a more simplified underwriting process. Insurers typically only ask a few basic health questions instead of doing a full health check. Because they only look at limited information, they set the price of the policy based on the average risk of a larger group of people rather than what's specific to you and your health.

Why could I be denied? – Your application can still be denied if you have a serious medical condition that insurers consider too risky to insure. For instance, if you have a recent history of severe mental health issues which has resulted in hospitalisation, your insurer might see it as a high-risk factor for potential claims and refuse to cover you.

Group underwritten life insurance

Group underwritten life insurance is designed for organisations like businesses and superfunds, offering cover for all employees or members under a single policy. Since these policies cover a collective group, they require minimal to no underwriting, making it a lot easier to get cover. Many providers will automatically accept you if you're employed or a member of the organisation. By spreading risk across the entire group, insurers can provide more affordable premiums, though the coverage levels might be lower than a life insurance policy you buy individually.

Why could I be denied? Generally, you won't be denied cover under a group life insurance policy. However, if you wish to apply for additional coverage with the consent of your employer or organisation, this will require underwriting. Your application could be denied, similar to other types of insurance policies that undergo this process. Each insurer may require different levels of underwriting, so it's important to check what they specifically need.

How to appeal a denied life insurance claim

If you've gone to make a life insurance claim and it's been denied, there's a few things you can do. You don't necessarily have to accept the decision. In Australia, there are options to challenge your insurer's assessment so you can access your benefits.

1. Internal dispute resolution (IDR): This procedure lets you formally appeal the decision. First, your insurer will take another look at the decision, generally within 45 days. During this time, you can present your case and provide additional evidence, like a timeline of events and copies of relevant policy documents. It's a good idea to have an insurance lawyer by your side at this point to advocate for you and offer advice. If the insurer upholds their decision, they'll need to explain their reasons clearly.
2. External dispute resolution: This is your next step if an IDR is unsuccessful. Take your case to the Australian Financial Complaints Authority (AFCA) for an external review. You lodge a complaint by completing a complaint form and providing any necessary documentation. The AFCA's decisions are binding, so if you agree with their ruling, your insurer or super fund will have to follow it.
3. Legal action: If all else fails, you may choose to go to court. While the legal process varies from state to state, this is generally how it goes. You'll lodge a statement of claim with the court, and your superfund or insurer will lodge a response. Both parties will exchange documents, and mediation will usually follow. If there's no resolution, a judge will review your case in court. Taking legal action can be significantly stressful and expensive. However, it can force your insurer to take your case seriously and, if successful, can get you additional damages or payments.

FAQs

• What do I do if my life insurance application has been denied?

  If your life insurer application has been denied, you can follow these steps:

  1. Start by reviewing the denial letter to understand the reasons you've been denied and to check for any inaccuracies.
  2. Seek a detailed explanation from your insurer and consider other policies with less strict underwriting. Improving your health might also boost your chance of being accepted for future applications.
  3. Check for group life insurance offers through your work or a super fund, as these usually need less personal info.
  4. Get in touch with an insurance advisor to see if they can help find other options.

• How do I fight a life insurance claim denial?

  There are 3 main ways to challenge a life insurance claim denial. This involves:

  • Internal dispute resolution: Formally appeal your insurer's decision within 45 days by presenting your case and providing any additional evidence.
  • External dispute resolution: If unsuccessful, you can take your case to the Australian Financial Complaints Authority (AFCA) for a binding decision by lodging a complaint with all necessary documentation.
  • Legal action: If you don't accept the AFCA's ruling, you can take things to court.

• Can a life insurance claim be rejected?

  Insurers have the right to reject a life insurance claim if the policyholder has given inaccurate information or an incomplete picture of their health and lifestyle. This might be leaving out details like a habit of smoking, any criminal records that indicate risky behaviour, or a dangerous job.