Why Did I Get Denied for Life Insurance?

We’ll be honest: Many people who apply for life insurance might be denied a policy. If this has happened to you, we’re so sorry to hear. You’re understandably curious about why this was the case, and we’re here to help clear things up.  

In order to get there, it’ll first help to explore some of the inner workings of life insurance in a way that you don’t have to be an actuary to understand, before digging into some common reasons a life insurance application may be declined.

Life insurance 101

At its core, life insurance is a promise between a customer (aka the policyholder) and their insurance company: If the insured person passes away, the insurance company will pay out a death benefit to people or entities of the policyholder’s choosing (known as the beneficiaries). 

A life insurance policy’s contract can last for a specific amount of time (with term life insurance), or for as long as the insured lives (that’s known as permanent life insurance; here’s more about the differences).

For every insurance company, there are a few big, fundamental questions they need to answer: Who do they offer coverage to? How much coverage do they offer? How much do they charge? 

If coverage was offered to absolutely everyone who applied, that would make the price of premiums soar, since the pool of insureds would include many, many people who have high-risk factors. (There are indeed policies—called guaranteed issue life insurance—that work like this, and they are predictably expensive.) 

For a company like Lemonade and its term life offering—prices for which can start at just $9/month—the challenge is finding a balance.

On one hand, there’s a desire to find customers who won’t be overly risky to insure; on the other, insurers don’t want to be so strict and selective that very few people actually make the cut.

What are some things that could lead to a decline?

Many life insurance policies require an in-person medical exam, bloodwork, and the like. Generally speaking, the more information about an applicant the insurance company is able to gather, the better able they are to assess an applicant’s risk.

With Lemonade’s term life offering, we skip all of that in favor of a comprehensive, fully digital experience. 

If you’ve applied and been declined, there are a variety of factors that may have led to that decision. Please remember that we’re not passing judgment on you, and that you shouldn’t take this decision personally. 

There are certain health and lifestyle factors that might lead to a decline.

• Current smokers or heavy drinkers might have a lower chance of being accepted for life insurance
• A current diagnosis of a major illness or disease
• A family history of things like cancer or heart disease
• Those who engage in high-risk activities like rock-climbing or skydiving might be denied coverage

Age can also come into play. Younger people tend to represent less of a risk on the part of the insurer, so they’ll be declined less frequently (and likely pay lower premiums). At Lemonade, the upper limit in terms of age is 60 years old.

Beyond this, how frequently you engage in international travel or whether you have a history of drug usage may also affect whether your policy application is accepted or denied.

You might be reading this and thinking, “Well, I’m a moderate smoker and travel internationally several times a year, but I can just skip mentioning that when I apply for term life insurance…” 

But remember: It’s really important that you’re honest and transparent when applying, because fudging the truth could prevent your beneficiaries from receiving funds in the event of a future claim.

Striking a balance for everyone

Typically, when insurance companies bring in people who have higher-than-average life expectancies, it means cheaper prices for policyholders and lower losses for insurers.

This is where underwriting comes in: the process of evaluating an individual’s risk. 

Lemonade’s term life offering utilizes accelerated underwriting, meaning that algorithms will figure out your risk profile by analyzing your digital medical and prescription records (with your consent, of course).

That takes the place of the traditional parade of blood tests, urine samples, and physician’s statements required by more traditional policies. What’s more, with Lemonade’s no medical exam life insurance offering, you don’t lose the higher fidelity underwriting and more personalized pricing. 

In the interest of transparency, here’s a caveat: Since accelerated underwriting is still relatively new, the underwriting itself is rather conservative in terms of who is eligible for a digital-only policy. 

Lemonade’s term life insurance offerings are indeed always 100% digital. You’ll never, under any circumstances, be asked to go get a physical, submit blood samples, or anything of the sort. 

What that does mean is that not everyone will be eligible for our term life offering, and indeed many applicants will be denied. It’s nothing personal! And fear not, there’s a lot being done to expand eligibility and coverage if you don’t qualify right now.

We hope this was helpful! We’d still suggest chatting with a financial advisor before making any big decisions.