Consumer Reports

By Steven H. Kobrin, LUTCF
May 11, 2004
Copyright © Steven H. Kobrin, LUTCF.
All rights reserved.

Consumer Reports has published an important article, "Insurance for those who are ill," in their June 2004 issue. Kudos to Consumer Reports for drawing attention to key issues for life insurance consumers.

While we appreciate Consumer Reports' historically good work and hard efforts, we find this particular article contains cloudy (and not necessarily correct) statements that bear clarification. We'll clarify these points, one by one.

You'll pay more?

According to Consumer Reports, "if you suffer from diabetes, heart disease, or a history of strokes, you can find companies that will cover you, even if you have been turned down by other insurers. You'll pay more, but if you shop carefully you should find the insurance you need."

You'll pay more? No, this is not necessarily true.

I'm glad to report that many of my own clients—with diabetes, heart disease, or history of strokes—have indeed received life insurance quotes at standard rates or better. The Life IQ website allows you to compare term life insurance quotes, received by real people with a range of health conditions.

Coverage at Your Work Place

Consumer Reports advises its readership to see what life insurance coverage is available through the work place, because "you may not be subject to medical underwriting to qualify. And group rates will keep premiums low."

Good advice, except—and this is critical—group life insurance is often not portable. This means you can't take your coverage with you if you leave your job or get downsized.

In addition, group plans typically have a limitation on face amount, making the coverage insufficient for many consumers.

Impaired Risk Insurance Agencies

Next, Consumer Reports suggests "getting coverage through an impaired-risk insurance agency." They suggest searching the Internet for "impaired risk insurance."

That sounds good, but it's not as easy as it sounds. Consumers should understand the limitations of most online agencies.

Online Quote Services

For example, most online agencies offer an automated quote service, which is merely utilizing the same or similar software as their competitors. If you don't fit the software's pre-established parameters, you're ruled out for coverage. Clearly, this type of "cookie cutter" approach does not work well for impaired risk cases.

Moreover, automated quote services can not adequately interview an impaired-risk candidate. Insufficient data is collected. The result? The consumer is typically hooked with lowball quotes that don't withstand the scrutiny of underwriting—leading to a form of "bait and switch."

We recommend that web visitors seek out live human contact—thoughtful, interactive dialogue—rather than rely on automated processes.

The Formal Application Trap

Another limitation with most online agencies is their tendency to simply take their potential clients' information, and throw formal applications at the "proverbial wall" to see which ones stick during underwriting.

This is possibly the single most common mistake, made even by agencies that specialize in risk impairment. It's a mistake because a rating or a declination puts a blemish on your life insurance application history—creating more trouble down the road.

The educated consumer will avoid this mistake, by demanding prequalification before authorizing the broker to submit a formal application. Therefore, our recommendation is that web visitors search the Internet for "life insurance prequalification."

Cost Projection

"Depending on the severity of your condition," Consumer Reports intones, "you can expect to pay two to three times more than a healthy applicant for term-life insurance..."

This is simply untrue.

First, it's impossible to project how expensive your insurance will be, compared to someone who does not have your particular impairment. Therefore, you should not have an automatic expectation.

Second, a projection of "two to three times more" seems way off the mark. For a reality check, see these cases that received Better than Standard Non-smoker rates. They include patients with diabetes, hepatitis c, scleroderma, seizure disorder, and anxiety and depression, and more.

Guaranteed Issue

Consumer Reports says, "Most insurance companies refuse to enroll people with serious conditions such as AIDS, Lou Gehrig's disease, or terminal cancer..."

While true, this statement leaves terminally ill consumers in the dark. It's important to point out what coverage is available to terminally ill patients—namely, guaranteed issue policies.

Guaranteed issue policies are limited in their face amount, and availability will vary by state of residence, yet this is the only option for some consumers. Consumers should be aware of all their options.

Professional Designations

Consumer Reports warns its audience to "make sure that any agent you deal with has a designation such as CLU (Chartered Life Underwriter) or ChFC (Chartered Financial Consultant)."

We would qualify this warning, by stating professional designations (such as CLU, ChFC, and LUTCF) are preferable—but not mandatory.

Professional designations indicate a knowledge of planning, finance, and legal issues - but they are not evidence of a broker's ability to prequalify and to perform field underwriting.

It is these latter skills that determine the broker's ability to find you coverage - and you should keep them in mind, when selecting your life insurance broker.

What did Consumer Reports get right?

All in all, we're very pleased by Consumer Reports' attention to the life insurance industry. And they surely gave some excellent advice in their article.

In particular, the article makes a good point about appealing your rate if your condition improves. This can be done at your policy anniversary with proper documentation.

Another good point is that the graded benefit plan can be less expensive than the immediate benefit plan.

A third point of excellent advice, when price and a limited budget are key factors, you should buy less insurance as opposed to buying none at all.

Keep up the good work, Consumer Reports!