For many advisors, one of the most frustrating experiences is a potential client being denied insurance.

Twenty years ago this wasn’t as big a problem — height and weight tables, blood tests and other measures used by underwriters were more forgiving, and reinsurance was used much less predominantly than it is now. Many borderline cases squeaked through the system, which provided valuable benefits for those clients who might not qualify for the same types of coverage today.

However, the rules around risk assessment have tightened, resulting in more denials of insurance than we’ve seen in decades past.

Trying to mitigate a negative insurance result is no easy task, but it can be done. The advisor’s best offense is to ring up the underwriter and communicate.

Actually, advisors and underwriters need to help each other. Simple cover letters, or comments from the advisor on the application, solve many problems for the underwriter before they materialize. As well, if an underwriter tells an advisor that an offer has been altered (with what information can be provided within privacy legislation limitations), it is much easier for advisors to position the difficult proposal.


Understanding how ratings work will give you and your client a leg up when it comes to dealing with an underwriter.

Life insurance rating can be explained simply by looking at a compound interest graph. We know from the Rule of 72 that our money will double every 10 years if invested at 7.2%. If standard-risk life expectancy for a client is age 85, but due to weight and other health issues, he or she could be expected to live only to 75 or 80, the company won’t collect enough interest on the premiums before the expected benefit would be paid out, and will have created only half or three-quarters as much capital as needed.

As a result, the client should be expected to pay some additional premium for his or her personal level of increased risk. The same could be said for critical illness, disability or long-term care, except the expected ages of claim would tend to be younger than that of the death event. So, to prove that reduced life or health expectancy is still worth purchasing for a higher price, explain to the client he value of those dollars. With most companies, you can show internal rate of return generated by the premiums to create the payout for both life and critical illness, and illustrate the effect of this.

Let’s look at an example

  • Joint last to die Term 100 type insurance
  • Death benefit $500,000
  • Couple, 65, non-smokers
  • After-tax guaranteed rate of return needed if premiums invested elsewhere to create $500,000

    Standard rates

  • Age 80 17.001%
  • Age 85 10.450%
  • Age 90 7.015%

    Same couple, but with a 200% rating (fairly high for a joint policy)

  • Age 80 10.136%
  • Age 85 4.976%
  • Age 90 2.341%

    So even if the second spouse lived to age 85, he or she still would have needed 7% to 9% pre-tax to have generated the same return on the couple’s premium dollars.

    The numbers work similarly for critical illness insurance

  • Male, 45, non-smoker, $200,000 benefit
  • Level to 75 premiums with return of premium at death and surrender

    Standard rates 200% rating Less than 6% for a pure risk product with no ROP

    So, ratings do make financial sense when compared with trying to self-fund an insurable risk.


    There is a second option — exclusions. Disability, illness and health insurance often have exclusions. Sometimes a client just wants protection because he or she is concerned about the same issue as the underwriter. Clients should understand that receiving an offer from an insurance company on this type of risk is difficult. Many advisors prepare clients for this type of application by recommending they get a preliminary assessment from an underwriter.

    There is a third, somewhat humorous, way to secure coverage. Keith Leech, president of Context Planning in Vancouver tells a story of an advisor who used the “Lever 2000 Close.” When the client asked his advisor why there were two exclusions on a disability plan, the advisor pointed out that he had 2,000 body parts; the underwriter was only worried about two — the other 1,998 were covered. The client took the offer.

    So, despite today’s stricter standards’ making it harder to get coverage, there are ways for clients to get insured.

    Chris Paterson is vice-president of sales for Manulife Financial.