Life on the Edge - risky insurance

Kiplinger's Personal Finance Magazine, Feb, 1999 by Kimberly Lankford, Ian Baldwin

How to buy insurance when you're the trapeze-flying, bull-riding, self-employed parent of a 16-year-old driver.

Bello Nock has performed on a trapeze attached to a helicopter flying 500 feet above the ground, walked across a high wire 300 feet up, and donned an inflatable suit to let himself be stepped on by an 8,000-pound elephant. But even Nock, a daredevil clown with the Big Apple Circus, has life and disability insurance.

"You have to shop around and get someone to listen to your story," says Nock, a father of three. His insurance broker, Rich Brooks of River Forest, Ill., has worked with Nock's family for years and knows the risks and safety measures involved with the stunts.

Not every insurer is receptive. But AIG, CNA, Lloyds of London and Transamerica have all insured the Nerveless Nocks (there are eight members of the troupe), though Bello pays about three to five times as much as he would if he didn't have a high-risk job, says Brooks.

If they search hard enough, motorcycle racers, race-car drivers, oil-rig firefighters and even people who are already in poor health can find life and disability insurance. A few auto-insurance companies accept almost anyone--including your teenage son and people convicted of driving under the influence. One life insurance company even covers people with HIV. But "it's not unusual for one company to charge triple what another would charge for the same person, or to decline the case entirely," says Byron Udell, president of AccuQuote, an insurance-quote service.

The price range is wide because companies don't take time to learn about every risk. "Insurers like to bet on things they can understand, predict and have some control over," says Andrew Blackman, a New York City CPA.

One life insurance company may study scuba divers, for example, and discover that certified, frequent divers aren't nearly as likely to die prematurely as people who dive once a year. The insurer might then offer certified divers a lower rate, while many of its competitors would continue to lump all divers together in a high-risk category, says John Krinik, publisher of Underwriter ALERT, a newsletter for insurance personnel who assess risk.

Other insurers may do the same for female teenage drivers or experienced skydivers or people with various stages of cancer. The trick is to find the company that'll charge you the lowest premium for your risk--and to make yourself appear as attractive a bet as possible.

Life Insurance: Few are turned down

Anything that increases your chances of dying prematurely (poor health smoking, a risky job, a dangerous hobby, a reckless-driving record) can raise the cost of life insurance. But only 5% of all applicants are flat out rejected, according to the American Council of Life Insurance, and they may qualify for coverage elsewhere.

Even top professional bull rider Tuff Hedeman--whose job involves being thrown from 2,000-pound bulls--has life insurance, although "it wasn't that easy to get," says Hedeman.

Serious medical conditions don't necessarily exclude you, either. After canvassing 30 companies, Steven Kaye, a financial planner in Watchung, N.J., found one that would cover a client with hepatitis C. Kaye also found a company that would insure a 35-year-old man who had suffered a heart attack, and two that would cover a client diagnosed with colon cancer two years before.

Life insurers generally have at least three price categories: preferred (the lowest price for the lowest risks), standard (the average price) and substandard (the most expensive). If you have a risky hobby, for example, a company will usually charge a premium that's $3 to $5 higher than the standard rate per $1,000 of death benefit, says Udell. If you suffer from a chronic illness, it may charge 25% to 300% more than the standard rate.

"Each company tends to have its favorite conditions," says Udell. Prudential, for instance, often has the best rates for private pilots and people with heart conditions. Guarantee Trust Life Insurance Co. is the only company that insures applicants with HIV. (They must be between the ages of 21 and 49, not be IV-drug users, never have been diagnosed with AIDS, and pay a hefty premium. The policy is not available in Alabama, Florida or New York.) CNA, Empire General, Life of Virginia and Lincoln Benefit Life also tend to offer competitive rates for high-risk clients, says Udell.

It helps to work with a life insurance broker who specializes in high-risk coverage, such as the 15 member brokers of the Risk Appraisal Forum (800-732-0313). Then you can let your broker plead your case. Bob Littell, president of Second-Opinion Insurance Services, in Atlanta, went to bat for one of his clients who had been under psychological care and was rejected by five insurance companies. After Littell and the client's psychologist wrote persuasive cover letters explaining that she had managed her condition successfully for years, one large insurer offered her a policy at the standard rate.

Other strategies for the hard-to-insure: