Consumer Reports

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.

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 there are carriers that specialize in providing coverage to the terminally ill, and they provide guaranteed issue policies. These policies are limited in their face amount and availability varies by state of residence, yet this is the only option for some consumers.

We feel it's a good option, considering the alternative is no coverage at all. Consumers should be aware of all their options.

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."

But is this accurate? Is it a foregone conclusion that you'll pay more? No.

We're glad to report that many of our clients-with diabetes, heart disease, or history of strokes-have indeed received life insurance quotes at standard rates. The "you'll pay more" mindset should be a thing of the past for savvy consumers.

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 crucial-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.

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

Most agencies offer an online quote service, which is merely an automated process. If you don't fit some pre-established mold, the software rules you out for coverage. Clearly, this type of "cookie cutter" approach does not work well for impaired risk cases.

After all, each consumer is an individual. Each case history is unique. No software program can possibly account for all the variables. Human contact and give-and-take dialogue is always necessary to find the best impaired risk coverage.

The Formal Application Trap

Moreover, most agencies 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 trap, by demanding prequalification before authorizing the broker to submit a formal application. This takes more time, more effort, and more knowledge of the underwriting market. But your broker must prequalify you, to protect your application history.

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. It is impossible to project how expensive your insurance will be, with regards to someone who does not have your impairment. Moreover, a projection of "two to three times more" seems way off the mark.

Take a look at these hepatitis c case studies, for a realistic dose of optimism.

For example, one 51-year old male received $250,000 of 20-year term life insurance at STANDARD rates with a small extra premium.

The carrier made this offer, even though his risk profile included: chronic hepatitis c, regular consumption of alcohol, history of kidney trouble, history of substance abuse (including heroin), family history of cancer, motor vehicle violations, piloting, and foreign travel. (File 10518)

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. These designations do indicate a knowledge of planning, finance, and legal issues regarding life insurance, 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.

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!

Best wishes for health and success,

Steve Kobrin