Rush of AIDS Patients to Purchase Life Insurance Told

Hundreds of AIDS victims purchased life insurance apparently knowing or suspecting they had been infected with the lethal virus, an insurance industry survey has found.

But the survey also suggested that most insurers now have taken measures to exclude potential AIDS patients, using such controversial methods as relying on blood tests to identify exposure to the AIDS virus. Critics also allege that some insurers are turning down applicants who live in predominantly gay neighborhoods.

The survey said that, of 1,032 AIDS death claims, a hugely disproportionate share occurred within two years of the issuance of a life insurance policy.

Those 33% of the claims accounted for 44% of the total $34.3 million in claims. Under usual circumstances, some actuaries said, about 1% of total claims might be expected within the first two policy years.

The pattern underscores the “inherent danger . . . to life insurance companies and the lack of fairness to other policyholders” whose premiums support those claims, according to the report, conducted by the American Council of Life Insurance and the Health Insurance Assn. of America.

The survey, which covered 325 insurance companies representing 72% of the nation’s health and life insurance business, was conducted jointly by the two trade organizations in late 1985.

According to the survey, the typical life insurance policy was in the $10,000 range, while the average death benefit was $33,471. But more than 125 policies totaled $100,000 or more, with three in the $500,000-$600,000 range, and three more for $1 million each.

“These figures underline the potentially disastrous financial impact of a handful of large claims from persons who apply for life insurance with the knowledge that they have been infected by the AIDS virus,” the report stated.

Several insurance professionals said they were not surprised by the survey’s findings because the industry had underestimated the effect of the AIDS epidemic.

Said Dan Case, an actuary with the American Council of Life Insurance: “Common sense tells you there’s going to be a lot of anti-selection,” an industry term that describes the circumstance in which the policyholder--but not the insurer--recognizes the likelihood of an early claim.

“I know there’s a great deal of (anti-selection) . . . I’ve had people making $20,000-a-year ask to buy $1-million policies,” said Brent Nance, an openly gay insurance agent in Los Angeles.

Nance and others said the industry’s tardiness in recognizing the AIDS epidemic opened “a window of opportunity” in which many gays purchased coverage from 1981, when the first AIDS cases were identified, and 1985, when tests that detect exposure to AIDS came into wide use.

Today, Nance said, the “window” has largely been closed. According to the survey, “virtually all” insurance companies now use multiple blood tests to screen certain applicants for AIDS. Some companies, Nance said, also engage in discriminatory practices such as redlining heavily gay areas like West Hollywood and Laguna Beach, or excluding single males who list unrelated male roommates as beneficiaries. He would not identify any company by name.

Dave Gooding, executive vice president of TransAmerica Occidental, a company that has had AIDS life and health claims totaling more than $4.6 million, said he did not doubt that “a minority” of companies are employing such illegal tactics.

California is rare in prohibiting insurers from using the so-called ELISA blood test, the primary method for identifying antibodies to the AIDS virus. But several California firms such as Trans-America use a T-cell blood test, which measures the general health of the immune system.

Case pointed out that the insurance losses may not turn out to be as great as the survey suggested.

If a death occurs within the first two years of coverage, companies are legally entitled to deny the claim if they can prove that the purchaser misrepresented his health in buying the policy.

Company Unconcern

But it is incorrect to assume that all or even most of the claims are fraudulent, Case added. Insurance companies a few years ago were so unconcerned about AIDS, he said, that they may have asked an applicant about heart disease, diabetes, high blood pressure or other health conditions, but not AIDS.

“It’s possible that companies did not ask the right question and therefore the applicants did not misrepresent their health conditions,” Case said.

Although all of the companies surveyed rated AIDS cases as “uninsurable,” Case said that because so many claims occurred within the past two years it was likely that insurance companies were unwittingly insuring applicants who not only had the AIDS virus but were already showing symptoms of advanced AIDS.