Greater comfort discussing mental health has meant more disclosures in life insurance applications.ThitareeSarmkasat/iStockPhoto / Getty Images
About one in five Canadians are diagnosed with a mental illness by the time they turn 25, according to the Canadian Institute for Health Information, which means many applications for life insurance disclose a mental health condition.
Karen Cutler, vice-president, head of underwriting and chief underwriter, individual insurance, at Manulife Financial Corp., estimates mental health disclosures on life insurance applications to her firm have doubled in the past 10 years. She attributes this to increased societal comfort discussing mental health and to the industry’s improved capacity to underwrite mental health conditions.
In turn, there has been a reframing of how underwriters interpret mental health interventions. Although it may once have been a strike against an application to see someone with anxiety taking medication, now it’s perceived as evidence they’re taking care of themselves.
For a favourable result, applicants should be able to demonstrate a meaningful period of stability and evidence of effective management.
Specifically, Manulife looks at factors such as compliance with taking medications, stability since the time of diagnosis, hospitalizations and time off work.
A recent serious event – such as major depression in the past year – may lead to a policy being rated, meaning the policyholder is considered higher-risk and premiums are more expensive. But Ms. Cutler emphasizes that’s “not something [they’re] locked into permanently.”
In 90 per cent of cases in which a rating is put on the policy, she says, there’s a reconsideration term “that says we will look at this again with two years of stability,” at which point the client can have their rating removed.
That represents an opportunity for advisors, she says. They can make a note to revisit the file and advocate for a client’s re-evaluation at the appropriate time.
Alternatives to fully underwritten policies
Some of the biggest mental health red flags for underwriters are suicidal ideation, bipolar disorder and schizophrenia, says Parvesh Benning, founder and principal broker at Protect Your Wealth in Hamilton, Ont.
“Those are typically declined or highly rated,” he says.
But that’s if someone is applying for a fully underwritten policy. He points to two other paths to life insurance: guaranteed and simplified policies.
Depending on the provider, a guaranteed policy may provide up to $100,000 in coverage to anyone aged 18 to 75 without any medical evidence. The downside is a higher cost because there’s no underwriting to protect the provider from risk and because guaranteed policies tend to be permanent life insurance rather than less expensive term life insurance.
A simplified policy falls in between a fully underwritten policy and a guaranteed policy. Applicants must answer a set of questions, but there’s generally no medical exam. Coverage amounts can be higher – up to $750,000 from some providers. And simplified term policies are available, which helps keep costs in check.
Mr. Benning says a simplified plan offers more flexibility than a fully underwritten plan, especially for someone who’s “a bit wary of having to go through an extensive process.” And it’s not ”outlandishly expensive" – about 20 to 30 per cent higher.
The more you know
Mr. Benning encourages clients to be open with him about all health issues, including mental health, so he can provide the best possible life insurance recommendation and also project the likely outcome of an application.
“As advisors, we have access to internal underwriting guides. … I try my best not to send in an application blindly,” he says.
When he isn’t sure which way an underwriting decision will go, Mr. Benning contacts several insurance companies with a generic situation that provides as much detail as possible without disclosing private information.
“The carrier is not bound by [their feedback]. However, it has significant weight and, with much more confidence, we’re able to apply,” Mr. Benning says, adding he always attaches relevant correspondence to the application.
Advisors can also help clients get the coverage they need by providing a cover letter or advisor report, Ms. Cutler says, which includes information not routinely collected on the application.
“Sometimes people are in a situation, they change that situation and they recover from mental health issues,” she says. “An advisor can put that into a cover letter and give another dimensional view of the person.”
Greater disclosure is a positive trend
Like Manulife, both Canada Life and RBC Insurance have noticed an increase in mental health disclosures on life insurance applications, and underwriters at those firms also consider this as a reflection of greater comfort discussing mental health issues.
“[It’s] a positive trend driven by greater awareness and reduced stigma,” wrote Brigitte Loos, vice-president and chief underwriter with Canada Life, in an e-mail to Globe Advisor. “Openness helps us make individualized assessments and often coincides with treatment and stability that improve outcomes.”
Kristine Fogarty, chief underwriting officer with RBC Insurance, also said in an e-mail response that there’s no one-size-fits-all formula for underwriting applicants with mental health conditions. The assessment looks at the full picture rather than focusing exclusively on any particular diagnosis or treatment.
“Having a mental health condition does not mean you shouldn’t apply for life insurance. Being open about your health history ensures your situation can be assessed properly,” Ms. Fogarty says.
She adds that advisors can play a role in creating a comfortable space for clients to discuss their full health history.
“Normalizing these conversations, asking open-ended questions and ensuring clients understand why full disclosure matters can make a meaningful difference in the application process,” she says.