Most people who apply for life or health insurance know that their current and recent health status usually plays a major part in whether a person’s coverage is issued(approved) or declined. It’s also used to determine if someone is well enough to be insured, but not at the best or lowest rates. There are some life insurance plans that have very little underwriting. These plans are for lower benefit amounts and usually have some limiting factors like a “Graded Benefit” period. This means that only a fraction of the benefit applied for is available in the first year of coverage if there is a loss. More benefit money is available in the second year if there is a death claim. Then in the third year (or sometimes later) the full death benefit is made available, should the applicant pass and a claim is generated. This is the trade-off for little to no underwriting or “fact checking” someone’s level of health.
What some people don’t realize is that along with requesting your medical records and/or requiring medical exams for most policies over $50,000, insurance companies have another tool to protect their interests from fraud and misstatements on insurance applications. It’s call the MIB, or Medical Information Bureau. It sounds like a “black ops” or X Files thing, I know. The MIB isn’t an arm of the government at all. It is a corporation that is owned by a group of some 400 plus insurance companies in North America and Canada. It has been around for over 100 years, or about half as long as the concept of life insurance (or assurance). This bureau functions as an information storing unit that records and files away when an individual applies for a life or health policy but is declined or charged more for the policy. Later, even years later, when the same person applies for insurance again, possibly with a different company, the company that was applied to can check with the MIB to see if there were any issues in the past with the applicant and the outcome of their application. Basically, it helps insurance companies protect themselves from adverse risk and the possibility of financial loss or ruin. These large insurers understand human nature and the resultant problems that occur due to people being less than 100% honest about their health and lifestyles in an attempt to get coverage. While they are protecting their own interests, these insurers are also protecting their policyholders from losing coverage that is already “in-force” due to the companies’ financial loss/bankruptcy as described above. It’s one of those unpleasant but necessary things in today’s world.
So when your insurance agent asks you if you have other coverage or have ever been turned down for a policy, now you understand one reason why they ask. Experienced agents work to make sure there is no negative report going to the MIB as a result of you applying for coverage now, so your future applications won’t be sidelined or rejected.
Written by Ken Kitchen, Ohio licensed agent and GM of Life and Health for HRC Insurance Services