How to make sure your term insurance application doesn’t get rejected

It’s that time of the year again. Everyone is scampering to invest in ELSS mutual fund schemes, NPS products, and insurance policies just to reduce their taxable income. And while buying investment products may be rather straightforward, insurance policies are anything but straightforward. Even if you’ve decided on a policy and made payment, it could take several weeks before your policy is issued. This is most apparent when you consider term insurance policies. Considering most people buy term policies whose coverage exceeds 1 Cr, insurers generally have a bunch of restrictions to make sure that they only extend policies to people who are unlikely to die young. And these restrictions can trip even the most educated customers.

After having advised over 300,000 people at Ditto, we still routinely see customers looking to buy a term insurance policy, only to then find out that their application is rejected or they’re asked to pay even higher premiums. So in this article, we will make sure we go over some of these restrictions, explain why they exist and what you could do to improve your chances of getting a robust term policy so your dependents are taken care of, even in your absence.

1) “I have absolutely no health conditions and still, my term insurance application was rejected. What nonsense?”

This is a common theme with most term insurance applications. Insurers commission a bunch of medical tests. Test results are seemingly normal. Doctors don’t make adverse remarks and yet, the insurance company denies the application.

Why does this happen? Why can’t insurers clearly state the reason for rejection?

Well here’s the real reason. Insurers don’t just want to know about your current health condition. They also want to know if you are likely to develop complications in the future. So they make projections about your health. And if their models state that you are likely to develop major health complications in the future, they will not extend a policy, because of the money that’s at stake here.

Okay, but why can’t insurers simply tell us this when they reject the proposal?

Because their projections about your health are probabilities and estimates. They are not hard truths. If they told you that you’re likely to develop serious complications in the future that could simply create more anxiety for you. Even the insurers know that their models could be wrong. So they generally remain vague.

However, if you have pre-existing conditions that are deemed critical, then they will tell you immediately that they won’t extend the policy for this specific reason.

2) “This seems so unfair. What can I do if my term insurance application is rejected or postponed?

Well, you can’t do much once the insurer declines your application. However, you can do a few things before you even submit the application in the first place.

In most cases, if you’re looking to buy a term policy with coverage exceeding 1 Cr, it’s likely you have to go through a bunch of medical tests. They’ll check for diabetes, blood pressure, and cholesterol levels and may even ask you to run on a treadmill.

And oftentimes, we see people fare very poorly here. On some occasions, insurers may bump up your premiums significantly because your diabetes and cholesterol levels are out of the normal range. We have even seen insurers ask customers to pay 100% extra on the premium amount. In other cases, they may defer or reject the application entirely.

One way to get around this is to do these tests yourself before you apply for a term policy. If they are slightly out of range, maybe you can work on controlling some of these markers and drastically reduce the chances of rejection (or increased premiums). Also, getting in shape and developing a jogging/running habit can work wonders if you’re looking to buy a term plan. You could end up saving a ton of money.

3) “Does that mean I have to give up smoking as well, just to appear healthy?”

Well, that depends. Smokers have to pay higher premiums when buying a life insurance policy.

This is understandable from an insurer’s point of view. Smokers generally carry a higher risk. So the insurer will want to compensate for the added risk by extracting a higher premium.

However, this added premium also means smokers now have an incentive to hide their smoking habits from the insurer. All they have to do is lie on the proposal form.

Case study: A few months ago, a customer at Ditto told our advisor point blank that they did not want to disclose their smoking habit because of the extra premium. His logic was simple – ‘I smoke occasionally and I don’t think there is any way for the insurer to find out about it. Even if they somehow find out about it, I will simply go to a different insurer. Let them reject the application.”

This logic sounds great on paper. However, there are some serious issues here. For one, insurers can recommend cotinine tests to identify if you are a smoker. These tests can detect nicotine in your body and sometimes can even detect smoking habits from as far back as 3 months. If the insurer finds good reason to believe that you may have lied in your application form, they may reject your proposal and refuse to ever issue a policy. However, if you simply think that you can go to a different insurer, you may be mistaken once again. These companies may also turn down your application since insurance companies generally share this information with reinsurers who generally work with many insurance companies at once. So technically, several insurers may be privy to the fact that you lied on your application once. This is almost like a blacklist.

4) “But what if I actually get away with it somehow? What if the test doesn’t pick anything up”

Even if you somehow get away with it, insurance companies can commission a thorough investigation when your nominees make a claim. So they may dig around to find any evidence that could prove you lied on your application form. They could reach out to family and old acquaintances and build a case if they suspect you were a smoker. And considering all this, it always makes sense to be honest with your declaration.

However, this brings another interesting question to the front – “What happens if you develop a smoking habit after you buy a policy?”

Well, nothing in the insurer’s policy wording specifically excludes policyholders from smoking after buying a policy. As such, this shouldn’t affect the outcome of any potential future claims. However, we generally advise people to inform insurers if they do pick up a smoking habit to avoid future scrutiny. In most cases, insurers will simply acknowledge your mail and move on. However, there is one thing we do not recommend doing.

Over-declaration!!!

5) Case study: A while ago, a customer at Ditto marked that he wasn’t a smoker but then during the conversation with the insurer’s doctor (during telemedical) he went on and on about how he lives with a group of friends who smoke all the time, that he is a passive smoker and how he believes that it’s even worse than active smoking”

Now generally, declaring everything is a good habit. However, in this case, the customer was simply relaying information that was not relevant. Although you may inhale smoke as a consequence of being around smokers, this isn’t considered smoking because insurers are very particular when they source information from you. Their question usually is this- “Have you smoked in the last 12 months?”

If you haven’t smoked in the last 12 months you should mark “No”. End of the debate. Do not make the mistake of explaining to the insurers and the medical doctors how you may still be a smoker because of all the passive smoking. This could needlessly complicate matters and some insurers may even ask you to pay extra.

These are just some of the things you have to be mindful of when buying a policy. However, insurance is highly personalized and there are several other things that you should also consider while buying a term policy. So if you generally want to avoid the many pitfalls that come with picking a term insurance and making a claim you can always book a call with our advisors at Ditto Insurance. We will help you every step of the way – right from the application to the claims.