Life Insurance and Foreign Travel

Imagine you are completing an application for life insurance and a seemingly innocuous question regarding your future foreign travel plans appears.  Of course, you answer honestly and state you may visit relatives in Israel or Colombia at some point in the future.  Unbeknownst to you, you just raised a super-sized red flag for the insurance company and perhaps provided a reason for them to decline your application.

This practice of risk assessment as it relates to foreign travel has been used by life insurance companies for many years.  Only recently has the practice become an issue, and now a hot button for legislation at both the federal and state levels.

The battle began when U.S. Representative, Debbie Wasserman Shultz (D-FL), was denied life insurance coverage by American General Life in March of 2005 for indicating on her application that she "may" travel to Israel at some future time, but had no immediate plans to do so at the time.  Her rejection letter from the insurance company stated, "We will be able to reconsider this decision once you have returned from Israel and there are no future plans to travel to any countries of concern.''

By the way, "countries of concern" can generally be found on the U.S. State Department's Current Travel Warnings list.

"As an American you can lawfully travel pretty much anywhere in the world," said the Congresswoman.  "You are asking Americans to choose between insuring their lives and legal travel.  The freedom to travel is a part of our way of life."

Wasserman Shultz has since sponsored legislation called the Life Insurance Fairness for Travelers Act, or LIFT Act (H.R. 3639).  The Act was attached as an amendment to the Terrorism Risk Insurance Revision Act of 2005, and subsequently dropped as a result of meeting significant resistance in the Senate.

It appears the battle has now moved to the state level.  As of February 2006, five states (CA, CO, FL, MD, & WA) have enacted regulations that curtail the use of foreign travel plans in life insurance underwriting, with legislation pending in two others (GA & MA).  The legislation varies by state, but the basic premise is to prevent life insurance companies from taking any adverse action based solely on the proposed insured's past or future lawful travel.  An insurance company would be required to provide sound actuarial data to support adverse decisions.

It will be very interesting to see how insurance companies interpret and respond to the new legislation.  Many companies have already begun to change or remove altogether their foreign travel related questions on their applications.  And, of course, other states will want to join the party.

I recently attended a conference hosted by a prominent life insurance company at which this issue was discussed.  The company (no name dropping) told the attendees they do not intend to change their underwriting practices, except in states such as Florida, where the law specifically says insurance companies cannot ask foreign travel related questions.  The company believes it can make a strong case for basing underwriting decisions partly on an applicant's foreign travel plans by using worldwide travel, disease, health and crime statistics as supporting data.

The company may have a point .... check out The CIA World Fact Book for interesting (and scary) worldwide statistics before you make those foreign travel plans.