Understanding Life Insurance
Medical Exams and Claims – READ THIS PART FOR SURE
The reason medical exams are so important is because if your claim gets denied after your death, it’ll probably be due to something on your medical exam. Therefore we need to know how a life company can deny a claim using your medical exam, and how to guard against this.
First however, lets dismiss some misunderstandings around life insurance medical exams. Medical exams don’t involve running on treadmills or any sort of anal probing. Depending on the policy type, a life insurance medical exam will consist of some combination of these three things:
- A short yes/no questionnaire.
- A medical history report (generally 20-30 fairly in depth questions).
- A blood and urine test, conducted in your home by a paramedical.
You should also be aware of the differences between policies, and the marketing surriounding ‘no medical exam’. Here’s the general categories of policies:
Guaranteed issue – no questions of any type. They’ll give you the policy. Very expensive, small coverage amounts only, and almost no benefits for two years. This was the old school definition of no medical exam insurance.
No medical exam – There’s a list of yes/no questions. If you answer them all no, you qualify for coverage. If you answer even one yes you don’t qualify. There’s no real underwriting here, just a pass fail. These are also expensive, often have limited coverage in the first two years, allow for smaller amounts of insurance, and generally have limited benefits (some don’thave conversion or renewals). People buy these policies because they’re ‘easy’, not recognizing that it’s sub-par insurance.
Underwritten life insurance with a medical questionnaire – A detailed medical history questionnaire. No blood, no uring. However the policy does go past an underwritter who will manually look at the policy and provide a decision. This is a full fledged, full benefit life insurance policy at the cheapest rates available generally. There’s no blood or urine. In years past, companies would add blood and urine for almost every application. With covid, there’s company now that will process a fully underwritten policy up to $1MM without blood an uring. Now consider, if it’s just a medical history questionnaire, is it a no medical policy? Because it’s sometimes marketed that way.
Fully underwritten policy, with blood and urine – this is the same, full fledged policy as the previous option, just with a blood and urine test taken at your home.
Your best bet is to always look at options 3 or 4 first. Don’t give up full insurance coverage just for the sake of a blood and urine test, or from confusing a no medical questionniare with a medical history questionnaire.
Now lets get into why this is so important, and how it relates to claims.
There are two reasons why a life insurance company can deny a claim. Both of these reasons are stated clearly in your policy, I’ll paraphase them here.
- Suicide exclusion clause – no claims are paid due to suicide in the first two years of the policy.
- Failure to disclose & fraud – The insurance company can (and will) deny your claim if there’s misinformation or lacking information in your application which includes any medical exam or questionnaire.
Now this is where we get to the guts of it. People often think that as long as they didn’t lie on the application that’s fine. It’s not. Your medical questionnaire must be complete, detailed, and verbose. AND you must answer the questions they asked, not the questions you think they asked. I know that sounds rhetorical. It’s not – people do this all the time.
When you do your medical questionnaire Stop. Listen to each questions carefully and slowly. Answer all questions fully, completely and verbosely. Leave nothing out, from your entire life. No detail is too small. If you’re not sure it’s relevant, disclose it anyway.
Let’s do an example. Here’s your first medical question. Imagine I’m reading it fairly quickly:
Have you ever had any tests, investigations, injury, treatment, or surgery on your eyes?
And most people say ‘no, my eyes are fine’. Which is to my earlier point – the question was not ‘are your eyes fine’. The question was…
Have you ever had any
- tests,
- investigations,
- injury,
- treatment, or
- surgery on your eyes?
That’s five questions, none of which just got answered.
I’ve had people with eyeglasses look at me and answer that question no. So, you’ve never had surgery, OK. You’ve never had treatment. OK. No injury, ever. OK. No investigations either. Also OK. But tests? Sure you have. Most people have their eyes tested every two years. So at a minimum you should answer this question something like this:
I get my eyes tested every two years, and I have to take no corrective action and have no issues.
You may wonder why this matters. Ultimately you just need to know that it does matter – ‘why’ is tough to answer because it varies. But let me make up an example. Insurance companies may want you to have your eyes tested routinely because diabetes symptoms can show up in eye exams – and insurance companies do care about diabetes. So, tell them. Details matter and neither you nor I will know what details matter – so disclose them all.
Secondly, recall the two reasons above why a life company can deny a claim. Suicide in the first two years, or failure to disclose. So if you said ‘no’ to the eye exam question, you die, why can’t the insurance company pull a report from your optometrist, see that you did have eye exams – which they asked about and you said no – and deny your claim. Do not try and justify this as it being absurd – perhaps it is. Nevertheless, don’t leave your beneficiaries exposed to a life company challenging this and then forcing them to take a life copmany to court. Have the life company look at your file and say ‘was it suicide in the first two years? No. Did they fail to disclose? No. Then pay the claim’.
Being detailed and verbose on your medical history questionniare is the single biggest thing you can do in order to ensure your life insurance claim is paid without delay and without denial. It will also make the application process quicker and will often (counterintuitively) increase your probability of getting cheaper premiums.