Few people realize mental illness is defined as a pre-existing health condition in the life insurance rulebook. That’s a problem because pre-existing conditions can make life insurance rates skyrocket.
Thankfully, this isn’t a definite. There are plenty of ways you can get an affordable life policy even if you have a mental illness.
Before we dig into how to do that, let’s first discuss how life insurance works and why mental illness sometimes impacts the price of it.
Life Insurance 101
There are two types of life insurance policies: term life and whole life. Term life covers you for a fixed period of time, such as 10, 20, or 30 years. Your beneficiaries only receive death benefits if you pass away within this period of time.
Whole life covers you for your entire life. It also has a cash-value component that builds up over time, which you can borrow against. Both of those benefits come at a price, however. Specifically, whole life policies are more expensive than term ones.
Mental Illness and Risk
Life insurance companies thrive off of low-risk customers. These are the people who are least likely to file a claim.
This is why insurers place people applying for coverage in various categories. From the best rating to the worst, they consist of:
- Preferred Select
- Preferred
- Standard Plus
- Standard
- Preferred Smoker
- Standard Smoker
People who have health issues and don’t fit into a particular category are categorized by the table rating system. These consumers get either a letter or number rating. Based on their rating, they will have to pay an extra percentage on top of their original premiums.
So what happens if you have a pre-existing condition like a mental illness? Well, insurers consider this a high-risk category, which means they’ll most likely give you a table rating.
The way Tony Steuer, founder of The Insurance Literacy Institute, puts it, “Anything that is going to increase your mortality risk or potentially shorten your life expectancy will impact your life insurance rates. The companies … are looking for their top tier rate classifications. They’re looking for the healthiest people and the best risks.”
In other words, insurers charge people who pose more of a risk more in premiums.
Now that you know how life insurance works, let’s dig into why and how mental illness impacts rates.
The Basics of Mental Illness
According to the National Alliance on Mental Illness, one in five US adults have a mental illness. Despite that statistic, mental illness continues to be a taboo subject for many.
Thankfully, insurance companies usually treat it like any other illness. So whether you have bipolar disorder, schizophrenia, anxiety, or even depression, most insurers classify it as a pre-existing condition.
But the spectrum of mental illness is vast. And because of this, different illnesses often warrant different policy rates. The severity of a particular mental illness also plays a role.
As a result, someone with major depression who has been in an out of the hospital will pay more for life insurance than someone with Seasonal Affective Disorder (SAD).
How Insurers Determine Rates
When calculating the rates of someone with a mental illness, underwriters take a few different things into consideration. They are:
- Age of diagnosis
- Years since diagnosis
- Severity of the illness
- Hospitalizations
- Frequency of doctors’ visits
- Use of prescription medications
- Changes in prescribed medication or dosage
- Family history of mental illness
- Other mental illnesses
- Other medical conditions
- Drug or alcohol abuse
- Suicidal thoughts or attempts
Life insurers use these factors to determine the probability of paying out a claim to your beneficiaries. And the higher the risk you pose because of these factors, the higher your rates.
As long as you go to the doctor regularly and maintain a healthy lifestyle, your rates shouldn’t increase too much. But they will still be higher than someone without a mental illness or pre-existing condition.
Applying for Life Insurance
Do you want the most affordable rates possible given your condition? There are a few things you can do when applying for life insurance.
To get a life insurance policy, you must go through a multi-step process that consists of:
- Comparison shopping for your best insurance rates
- Choosing a company
- Getting a medical examination
- Getting results and rates
During this process, an underwriter will look at your medical record. They will pay special attention to the factors discussed above in the “how to determine rates” section.
They’ll then classify you in the general insurance rating system that ranks from preferred select to standard smoker. And if your health condition doesn’t permit you to be classified in this system, you’ll be table rated.
For example, Steuer says that if you’ve been bipolar for 20 years, take your medication as prescribed, go to the doctor every time you have an appointment, and haven’t been hospitalized or attempted suicide, the insurance company may view you more favorably.
Even then, he adds, “With bipolar, it’s difficult to get a client even a standard rate class. Usually you’re going to be talking a low table rating.”
Unfortunately, insurers come up with rates on a case-by-case basis. Plus, there are so many factors that impact premiums that two people with the same illness could pay drastically different prices for the same policy.
Mental illness can hit your budget hard. This is why it’s so important to shop around with different companies to find the most affordable rates.
Finding Affordable Rates
How can you find affordable insurance rates with a history of mental illness? There are a few different ways.
Manage your condition
If you have actively maintained your condition for a year and you can prove you’re stable, you could reap the rewards of lower insurance rates.
“The insurance companies are going to really look at the issue of compliance with the medical orders,” Steuer says. “And they’re going to look for some stability.”
So if you’ve only recently been diagnosed and you’re new to your medication and dosages, Steuer suggests waiting six months to a year before applying for a life insurance policy. If you want your best possible rates, you’ll want to make sure your health is stable and in order first.
Shop Around
You’ve probably heard it before but the most reliable way to find affordable rates is to get quotes from multiple different companies. If you only apply for a policy with one company, you’ll never know whether there are more affordable rates out there.
Denied Coverage?
According to Anthony Martin, owner and CEO of Choice Mutual, to reduce your chances of being denied coverage, “Be honest and thorough with your agent. Do not leave any detail out. Try your best to recall every detail regarding diagnosis, past and present medications, different treatments, doctor visits, hospitalizations, or anything else that could be related to your conditions. This information will be what your agent needs to accurately identify which companies will approve you and what they will likely charge you.”
For the most part, what will prevent you from being rejected coverage is disclosing every detail of your illness. But if you do find yourself in the unfortunate circumstance of being denied coverage, there are a few alternative policies you can purchase.
Guaranteed Acceptance Policies
This is also known as “guaranteed issue” or “guaranteed” life insurance. These policies accept customers regardless of their medical history. They also don’t require medical underwriting. The downside? They cost much more than a regular policy, and payouts to beneficiaries are much lower.
Graded Death Benefit Whole Life Insurance
This policy pays out small benefits to the beneficiaries during the first two years following a death. After that, the benefits will have accrued to the point that your beneficiaries have received a full payment.
Because this policy doesn’t require medical underwriting, it’s well suited for people who can’t find coverage elsewhere. But keep in mind the premiums will be much higher.
Impaired-Risk Agents and Brokers
As a last resort, you can always go through an impaired-risk agent or broker to find coverage. These are individuals who will help you find insurers offering your best rates, despite pre-existing conditions. So if you have a mental illness that puts you at an unfair disadvantage for finding affordable life insurance, these agents and brokers can help you find a carrier.
Frequently Asked Questions
Q: What is a suicide clause?
A: This is a clause stating your beneficiaries won’t receive death benefits if you commit suicide within two years of purchasing a policy. Many life insurance carriers enforce this clause.
Q: What if I don’t disclose my mental health upon applying for a life insurance policy?
A: You should always let your insurance company and underwriter know all details of your medical history. If you don’t and you die of causes related to your medical condition, your beneficiaries may not receive a full benefit payout.
Also, if they discover your condition before you die, your insurer may terminate the policy.
Q: Should I choose a term or whole life policy if I have a mental illness?
A: It depends on your stage of life. Do you have young children or a spouse that depend on you for income? Or are you single without any dependents?
Term life policies are better for people who only need to support dependents for a fixed period of time—such as until their children graduate college. Whole life policies are well suited for people who want to protect their assets and estate.
If you need help deciding between the two, talk with an insurance agent or broker.
Q: How long should I wait after my time of diagnosis to apply for a life insurance policy?
A: It’s best to wait at least six months to a year after you receive a diagnosis. This is because you’ll want to get your health under control before you apply.
Wait until you get into a routine with your doctors’ visits and with taking your prescription medicine. Showing your underwriter that you have your mental health in order will also help get you better rates.
Q: What if I have group life insurance from my employer? Is that enough?
A: For the most part, group life insurance won’t suffice. It’s often not enough to cover your dependents in the event of your death. It covers only about double your annual salary, while a term or whole life policy will cover five to 10 times your yearly salary.
Most people who get life insurance through work also have a private policy.
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