Well, this is awkward: Your client agreed that he needed additional life insurance. You submitted the application, and then your client learned that he won’t qualify for preferred rates, which was the amount that fit his budget. Instead he’s been rated as a higher risk, and the annual premiums are much higher than you two had discussed. The client understands that it’s not your fault. But you’re still concerned the incident has strained the relationship.
“People take personal offense to ratings, or worse yet, declinations, because they feel like it’s almost an attack on their person,” says Kevin Meehan, CFP, ChFC, with Wealth Enhancement Group in Itasca, Illinois. But, the reality is that many clients develop health conditions as they age that negatively affect their status as life insurance applicants.
How can you decrease the likelihood that an underwriter will penalize your client? It’s possible to do this by providing the additional details required to help that underwriter make a better informed decision.
Conduct more focused interviews
Meehan’s firm has clients complete a standardized form requesting health details before they approach any of the life insurance brokers with whom they work.
Similarly, Million Dollar Round Table member Brendan Walsh with Catalyst Solutions Group in Birmingham, Michigan, starts by asking higher-level health-related questions: date of birth, tobacco usage, any health issues in the past five years that might be a red flag for underwriters? These questions give him an initial sense of any potential problems. “We’re going to do some pre-underwriting,” he says, “to see if we might be running into any issues in the underwriting process or if there’s anything for which we need to prepare in advance.”
If a potential underwriting concern comes up, Walsh digs deeper. He cites a fairly common example of skin cancer. In those cases, he’ll ask about the diagnosis dates, treatments, any medications, how long since the client has been out of treatment, and so on.
An informal, “pre-underwriting” survey can help decrease the likelihood that an underwriter will penalize your client. (Photo: iStock)
Using that information, Walsh can call an underwriter at a carrier with whom he has a good relationship to get their informal opinion on the case’s underwriting challenges. He frequently also suggests to clients that they approach prospective insurers through an informal inquiry.
“We’ll fill out an informal inquiry questionnaire,” he explains. “We can then disseminate (the questionnaire) to a number of different carriers so that we can get some firmer ideas of how they might be underwritten before we even actually go through a blood and urine sample and complete formal underwriting.”
Walsh has found that clients and prospects, especially those with any history of health problems, appreciate this approach versus moving directly to a formal application. These applicants are often apprehensive about the process, he says.
“I think it really helps assuage some of those concerns because it’s soft underwriting without actually going in and getting a hard decline or a hard rating from a carrier,” says Walsh. “We can get a good sense of what we’re going to see and how carriers might treat that.”
Mitchell Kraus, CFP, CLU with Capital Intelligence Associates in Santa Monica, California, also drills down before submitting a formal application. If he spots a problem, he then contacts different insurers to learn how they would handle the application.
He describes a recent case in which two applicants in a family were recreational marijuana users. After reviewing policy illustrations, he contacted the insurers to learn how they would treat the usage and found one that would still issue at preferred rates. “Knowing that, the clients were much more open in the exam process as they knew they could tell the truth and we got both cases approved preferred,” he says.
Additional details can make the difference between facing a satisfied client or an embarrassing client conversation. (Photo: iStock)
Details are good
Both Meehan and Walsh emphasize the importance of supplementing the application with additional detail when it makes sense to do so. Although Meehan doesn’t do that for more routine-underwriting policies, he does provide it when the amounts involved are large relative to the applicant’s income or when the policies are supporting business purposes like deferred compensation or business continuation. “The more sophisticated the case becomes, the more written information and financial information you may want to provide the insurance company so they know that there is an insurable risk to address,” Meehan suggests.
See also: 10 benefits of fact-finding
Walsh takes a similar approach. His experience has been that the more information he can provide, the better, because the additional details help underwriters flesh out the profile they build. He usually provides that information with a cover letter and he or someone from his staff often follows up on the application to learn if the underwriter can use additional insights.
An underwriter is given “one shot” to come up with a correct assessment and any additional information an agent can provide helps, says Tom Farrell, vice president, life underwriting, Prudential Individual Life Insurance in Newark, New Jersey. Farrell strongly advocates the use of a cover letter with the policy application, even if the case does not appear to be unique. Why? A cover letter is an opportunity to provide additional background information to the carrier and the underwriter, he says: “Tell us what you want us to know. Why did you sell insurance to this person? What did you discuss? If there is a health impairment, dig a little bit deeper and ask some questions to try to help the underwriter out. So, I urge them, even if it’s not unique, to try to submit a cover letter on every case.”
Farrell cites a hypothetical case in which the advisor learns the applicant has a history of diabetes. Possible follow-up questions could ask, for example, if the applicant is following doctor’s orders, frequency of doctor visits, glucose monitoring, exercise habits. That information would help the underwrite evaluate a case. It’s not necessary for the advisor to dig too deep, though, he adds, because the insurer will request medical records and the underwriter will assess the case based on those records.
Agents can also protect the insurance company at this stage and improve relations with underwriters, Farrell adds. He recalls a case in which the agent knew that the applicant was a smoker, but the applicant refused to disclose that in the application. The agent included a cover letter that informed the insurance company of that habit. “While it didn’t help him with the case, it helped the company and the relationship aspect between the underwriter and the producer was enhanced in that situation,” he says.
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