Buying Life Insurance

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I was having breakfast the other day with a friend who is an attorney specializing in estate planning. He was worried about his father, a financial services professional, who happens to have diabetes. They were both upset because his father could not buy life insurance.

“Did he apply?” I asked my friend.

“Why bother?” he replied. “He has diabetes.”

Here were two professionals who advise others on the role of life insurance in financial planning, and they had no idea how to solve this common problem. The fact is that life insurance for people with diabetes can be both inexpensive and relatively easy to find. The key is to prepare your case in the most accurate, complete, and positive light.

Life insurance 101

Life insurance fits many needs. Its primary purpose is to replace the financial consequences of an untimely or unexpected death. For example, it can be used to pay an estate tax or for the needs of dependent children. Discussing one’s own mortality or that of a family member is never fun, and it’s rarely a priority for anyone. But using life insurance to help plan for your financial future often makes a great deal of sense.

The seemingly vast realm of life insurance products can be broken down into two main types: term insurance, and cash value, or permanent, insurance. Term insurance covers you for a period of time, usually from 10 to 30 years. A claim is paid if you die during that term. Term insurance is inexpensive and builds no cash value over time. It can be renewed, replaced, or converted to permanent coverage. For many people, term insurance may be the best fit: It can ensure that there is money for college tuition, for example, or to pay a mortgage if a parent or spouse dies unexpectedly.

Permanent coverage can provide lifelong protection as long as you pay the premiums, and it uses a portion of the premium you pay to build a cash reserve. You can use the cash to take out a loan, make a withdrawal, or pay a premium or for other uses. (However, using the cash may reduce the cash value of your policy or reduce the death benefit, depending on the type of policy you have.) There are different types of permanent coverage, including the following:

  • Whole Life, in which the premiums are level and the insurance company decides how to invest the cash reserve. If you live to the policy’s maturity date (usually when a person reaches 100 years), the accumulated cash value will be equal to the face amount, or death benefit.
  • Universal Life, which allows premiums to be paid on a flexible schedule and in varying amounts
  • Variable and Indexed Universal Life, in which the policyholder directs how the cash reserve portions of premiums are invested (in stocks or bonds, for example), and death benefits and cash values vary according to how the investments perform

Different products fill different needs. It’s critical to consult a professional to find the right one for you. The right agent should spend time discussing your needs and putting together a plan for the future.

Where to look for life insurance

The Internet can be a wonderful source for gathering information, but when it comes down to actually submitting an application, it’s best to use the services of an expert. The experience of an insurance agent who specializes in or has experience in “impaired risk” is invaluable, because he has seen situations similar to yours before and knows where your best options will be. There are insurance companies (carriers) — good ones — who tend to be very aggressive when it comes to assessing a risk like diabetes. In other words, these companies want your business and are willing to make a competitive offer.

If you don’t already know an insurance agent, ask around. Most likely a friend, family member, or coworker does. An insurance agent who doesn’t specialize in impaired risk may know of others who do. You can also check the phone book, look online, or contact the provider of your car or home insurance for leads. It doesn’t cost anything to meet with an agent (he gets a sales commission if you buy a policy through him), so take your time, shop around, and talk to more than one agent before you make any decisions.

Be aware that all states require insurance agents to be licensed, and that agents who sell variable life insurance products must be registered with their state securities regulator and have additional state licenses. You can check the background of investment professionals, including agents who sell variable life insurance products, through the “FINRA BrokerCheck” feature of the Web site of the Financial Industry Regulatory Authority (FINRA),, or by calling FINRA’s toll-free hotline for seniors at (844) 574-3577 or their call center at (301) 590-6500.

Make sure the agent you choose represents — and, equally important, checks with — multiple carriers on your behalf. An agent specializing in impaired risk typically represents many companies and has the ability to obtain multiple competitive offers.

Life insurance is big business, and carriers want to make wise business decisions. But many would prefer to provide you with coverage than to deny you. So they research medical conditions, including diabetes, so that they understand the risks that you — and they — are facing.

Risk categories

Imagine yourself in a huge pool. That’s what an underwriter — the insurance company employee who evaluates life insurance applications — does. Then he plucks from the pool the risks that are the most attractive for him to take, and puts potential clients into categories. At the top of the list is a Super Preferred category (which might also be called Preferred Best, Preferred Plus, Elite, or something else). The people who fit into this category are generally young and fit and have no medical conditions. People who have diabetes can pretty much forget that one.

After Super Preferred is Preferred, which can be in reach for some people with diabetes. According to Larry Segel, MD, Chief Medical Officer at John Hancock Life Insurance Company, “At John Hancock, it’s possible for well-controlled Type 2 diabetics over age 60 to qualify for Preferred. Our proprietary underwriting manual allows us to make fine distinctions that often work in clients’ favor. For example, generally, if there are no complications or other impairments, the length of time a person has had diabetes does not have an impact on our offer.”

After Preferred is Standard, and many people with diabetes can fit into this class. Standard premium rates run about 10% higher than the preferred classes.

Below Standard comes what are called Table Ratings. People who fit into these categories pay the Standard premium plus an additional percentage of the Standard premium, usually 25% per table. So if you applied for coverage and received an offer of “Table 2,” your premium would be 100% of the standard rate plus 50% additional premium, or 150% of the standard rate.

In determining which category a person fits into, an underwriter attempts to create an image of who that person is. He looks at the person’s overall health, height and weight, family history, occupation, and hobbies. He then compares that image to the images of other people in the same population, with the goal of predicting when that individual is likely to die — and to cash in on his life insurance policy. Granted, it’s a little grim, but it’s a science. And remember, it’s a business.

The key for the person with diabetes lies in convincing the underwriter to place him in the best possible underwriting category. The category, along with the type and amount of the insurance you want, dictates the premium you pay. So your part is to provide whatever information you can that will help to place you in the best possible category.

Improving your category

Believe it or not, what you’re doing right now is one of the most positive things you can do to improve your underwriting category: You are reading, and to an underwriter, that demonstrates that you have accepted your situation and are making an effort to see what you can do about it. If this is only a small part of your overall diabetes management plan, even better. Let your underwriter know that.

The two most important words from an underwriter’s perspective are “control” and “compliance.” Your HbA1c test results and home blood glucose readings, along with frequent visits to the doctor, help an underwriter see how your diabetes is monitored and controlled.

It has not always been that way. An underwriter who has been in the business for many years told me, “Back in the 1960’s, we didn’t have any way to determine if someone had diabetes unless they told us. If they didn’t know they had diabetes but we received a urine specimen with glucose in the urine (called glycosuria), we would ask them to do an oral glucose tolerance test. That was how doctors determined someone had diabetes, too.”

Perhaps the most important element in painting a positive picture lies in an understanding and acceptance of your diabetes. Insurance agents and underwriters see many instances where the person seeking life insurance seems to be the last one to know he’s got diabetes. The doctor sees it; the underwriter sees it; it’s clearly highlighted in the lab work. But the individual does not acknowledge his diabetes.

It’s critical to fully understand that the disease exists, and to plan accordingly. What should the plan look like? You and your doctor know the answers to this question. Underwriters are looking for the same trends.

“To the life insurance underwriter, the best diabetes risk is the diabetic who clearly knows and understands his disease and fully embraces his responsibility for self-control,” says Mike McFarland, Vice President, Individual Life Insurance Underwriting at Prudential Insurance Company of America. “Quality dietary habits, a regular exercise regimen, frequent medical checkups, good diabetic control, and compliance with the physician’s diabetes treatment plan are all benchmarks of a good diabetic risk.”

Having and following a meal plan (what an underwriter might call “dietary compliance”) are indispensable. Show the insurance company that you at least know how you’re supposed to eat and that you are making the effort, even if you sometimes fall short of the mark.

Exercise looks good, too, in more ways than one. Are you a member of a gym? Great. Do you go? Even better. Spell out the details of your exercise routine in your application: “I belong to Johnny’s Gym in Oakland, California. I go there Tuesdays and Thursdays, and I take a jujitsu class on Saturday morning with Clarence, my instructor. I can now burn up to 300 calories on the elliptical.”

Don’t drink too much, and don’t smoke or use tobacco at all. Coverage gets much tougher to find.

Remember when you apply for insurance that the life insurance carrier will order a copy of your medical records. If your doctor makes a note that says you’re not taking care of yourself, or your record clearly shows a trend of higher and higher HbA1c test results, those are red flags. The presence of any diabetic complications — such as retinopathy, neuropathy, or nephropathy — will also make your case tougher. Even though these complications are not necessarily evidence of poor control, life insurance underwriters see them as such. Other health conditions can cause problems, too, but resist the temptation to try to conceal any part of your medical history, because the underwriter will be looking at your records.

For an example of a life insurance application cover letter written by a person with diabetes, see “Sample Cover Letter.”

Reason for hope

I lost my Dad to complications from diabetes a few years ago. He was diagnosed with Type 1 diabetes at age 20 and went on to battle the disease for nearly 50 years, enduring many complications and receiving a kidney–pancreas transplant at age 55. He was, and continues to be, my primary source of inspiration.

Luckily, the treatment of diabetes has come a long way since my father was diagnosed. The life expectancy of people with diabetes has increased significantly, and there are life insurance carriers out there who know this. They price for it. They underwrite for it. And the truth is, if you paint your picture in the right light, life insurance can be accessible and affordable.

Originally Published November 22, 2010

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