The Problem with Buying Life Insurance Online

Simon Huften

Simon Huften is the President of Life Insurance Canada.com Inc.

Buying life insurance online is fraught with dangers – dangers that can leave you with subpar life insurance policies, and leave you exposed to claims payments that are denied.  In this article we’ll step you through some of these problems and provide resolutions.

Danger 1:  Individual Circumstances Not Accounted For

There’s enough information online that diligent consumers can wade their way through to becoming reasonably educated in the general sense.  You can determine if generally, term life insurance is better coverage for you than permanent. You can read about no medical exam life insurance vs fully underwritten policies.  The problem is in the specifics – this is where you may not be able to find enough information to make a reasonable decision for your circumstances.

e.g. You’re a smoker who’s planning on quitting. You’ve decided on a term 20 as the appropriate policy type.  In this case, there are strategies that can reduce your premiums substantially (almost to non-smoking premiums) until you quit smoking, and then other strategies once you’ve completed your quitting smoking strategy.

e.g. you have type II diabetes.  You may think that you cannot get life insurance – in fact, you likely can (and in some cases, at standard premiums).  Not all companies treat the range of this condition in the same fashion, so depending on your specific situation there may be some companies that will not only insure you, but insure you at premiums noticeably lower than other companies. 

Solution  

If you have any questions about your specific situation, you should consult with a knowledgeable agent before purchasing life insurance who can evaluate your individual circumstances and advise you on where you may want to deviate from the general information you have.  Here at LifeInsuranceCanada.com, we have experienced advisors who are available to assist you, contact us for no obligation advice.

Danger 2:  Self-Underwriting Leading to Denial of Claims

Some online policies (and some offline policies as well) require the insured to answer medical questions on their own, generally in a yes or no format.  The policy is then issued based on the consumer answering ‘no’ to all of the questions.

If you should die, and the life insurance company determines after the fact that you answered one of the questions incorrectly, this can lead to your claim being denied.  So you need to be careful to answer these questions correctly.  Unfortunately, consumers are often unable to correctly determine the correct answers to some of these questions – even when the medical questions seem straightforward.  

Here’s an (entirely made up) question that illustrates the problems you can have:

“Has your doctor advised you to stop drinking due to alcohol abuse?”.

And let’s say you have a bit of liver damage from when you were young, due to alcohol.  You’re older now and have curtailed your drinking.  Your doctor has advised you to stop drinking entirely because any further drinking could cause further damage to your liver.

So, is the answer to the question yes? Or no?  Are you being advised to stop drinking due to alcohol abuse (and thus the answer is yes) or due to potential future liver damage (and thus the answer is no).  Answer this question incorrectly, and your claim can possibly be denied.

Note that these are not trick questions. Instead, they’re difficult to interpret even for experienced advisors and even medical professionals, much less a consumer.

Also note that these policies are not the same as a fully underwritten policy.  In a fully underwritten policy, you still provide medical information but the insurance company is reviewing the data and making the determination as to whether you qualify for the life insurance or not.  In the above example, you would have disclosed your prior drinking, your liver test results, and the doctor’s recommendation and the insurance company decides if it’s relevant or not.  There’s less chance of a claim being denied with this type of policy.

Solution:

Avoid self-underwritting policies wherever possible, and be cautious of this type of policy when purchasing online.  If you need assistance with this type of policy, please reach out to LifeInsuranceCanada.com and we’ll provide you individual assistance with your purchase.

Danger 3:  Subpar policies

The goal with life insurance purchased online is to make the process fast and easy for consumers.  Unfortunately traditional life insurance applications can be fairly detailed, and take a period of time to fully review.  The tradeoff is that some online life insurance policies will cut policy features and attributes that get in the way of ‘fast and easy’.  

An example of this is a traditional term life insurance policy.  Counter to common perception, not all term life insurance policies are the same.  Many traditional term life insurance policies are ‘renewable’ and ‘convertible’, two features that most Canadian consumer advocates would advise you to have.  However numerous term life insurance policies structured for online sales are not renewable and convertible.  Most consumers would simply shop on price or ease of application, and forego these policy features without even realizing that they’ve done so.  Certainly if you decide that renewable and convertible are not features that you care about, then these online policy types are fine – but you are likely simply unaware that these attributes exist, and thus unable to evaluate if they’re something you should care about.

Solution:

LifeInsuranceCanada.com will always recommend a renewable and convertible term life insurance policy first.  If a consumer was unable to qualify for this type of policy, we would educate them prior to recommending a non-renewable and convertible term policy.

Conclusion

In the end, some caution is a good idea when purchasing life insurance online.  Certainly the application process being done online is a great time saver for Canadians, but you need to ensure that the faster application process doesn’t come with problems resulting from product insufficiencies or lack of customization for your individual circumstances. For help purchasing life insurance online please reach out to one of our life insurance specialists.