Not everyone can qualify for a traditional life insurance policy. Depending on your health and lifestyle, an insurance underwriter might be reluctant to approve your application for a policy.
If you have only applied to a company or two, don’t give up on a traditional life insurance policy yet. Every company has different standards that they follow, and something that disqualifies you from one might not disqualify you from another.
When you have exhausted your options for traditional life insurance, you might begin to feel hopeless. Don’t be. We’re here today to tell you about the alternatives to traditional life insurance.
Why Traditional Life Insurance Might Be Out of Reach
Insurance companies can be picky about who they insure. That’s good for their bottom line, but it can be a problem for the people whose applications they reject.
During the underwriting process for a traditional life insurance policy, you will be asked to undergo what’s called a paramedical exam. It might not be fun, but it’s relatively non-invasive and fast
Most of the time, you will be asked questions about your lifestyle, like whether or not you use tobacco. Your height and weight will both be measured, and a medical professional will check your pulse and blood pressure.
In some cases, the insurance company might ask you to have a blood test. They may also request a urine test or an EKG.
An insurance company might choose to reject your application after examining your medical history, lifestyle habits, and lab results for a variety of reasons.
Risky hobbies like cave diving or skydiving are generally frowned upon by life insurance companies, although they may not disqualify you.
Your age may also play a role in their decision. For example, if you’re over 85 or so, a company might be reluctant to insure you. That's true even if you’re in perfect health.
Serious health issues like late-stage kidney failure and some cancers will throw red flags during your review as well.
Some insurance companies will look at your mental health history too. Insurance underwriters take a holistic approach when analyzing whether you would be a good investment for their company.
Never lie on an application or during an exam. You may lose your coverage if the lie is discovered, and finding another policy could prove difficult.
Final Expense Life Insurance
As its name suggests, final expense life insurance policies are designed to cover costs associated with funerals, burial, cremation, and some end-of-life medical expenses. While that may not sound like much, the average funeral can cost between $7,000 and $12,000. Anything you can do to alleviate some of that burden on your family is worthwhile.
It isn’t just funeral costs that you can use final expense life insurance to help cover. If you have dependents, whether they’re minor children or aging parents, the death benefit from your policy can help protect them.
The same is true if you have any debts that could potentially be transferred to a spouse or other family member if you pass away.
Final expense life insurance comes in two forms. These are simplified issue and guaranteed issue life insurance.
The good news is that neither requires a medical exam. However, each has pros and cons associated with it, so we’re going to discuss both of them in more detail.
Simplified Issue Life Insurance
If you’re older or have a pre-existing health condition, you might dread the paramedical exam. Simplified issue or simplified whole life insurance doesn’t require you to undergo any type of medical exam.
Simplified issue life insurance is one of many forms of whole life insurance. That means it will last for your entire life. You won’t need to worry about what you will do when the term expires.
Compared to guaranteed life insurance, it also tends to be slightly more affordable.
Because you won’t have to wait on the results of any labs done during the paramedical exam, a company will generally process your application for a simplified whole life insurance policy quickly.
Simplified issue life insurance is generally considered unfavorable due to the drawbacks associated with it. The main issue is that, for what you pay, you won’t receive much coverage.
It’s also not guaranteed.
You don’t have to undergo a paramedical exam during an application for simplified issue life insurance. However, you will need to answer several questions about your health during the application process. The person assigned to your case will likely look at your medical history too.
If you have some sort of terminal illness or one of several types of cancer, you probably won’t be eligible.
Depending on the policy you receive and the company you’re working with, you may have to hold the policy for at least two years. If you pass away before then, the company won’t pay out the death benefit to your beneficiaries. They will, however, refund the money you have paid in premiums.
Generally, you also need to be between 45 and 85 to be eligible for this type of life insurance.
Guaranteed Issue Life Insurance
If for whatever reason, you don’t qualify for a simplified whole life insurance policy, guaranteed issue life insurance might be the security you’re looking for. As with a simplified issue policy, there isn’t a paramedical exam.
You get to avoid having a medical exam if you apply for a guaranteed issue life insurance policy, which many people appreciate. Additionally, you won't have to answer any questions about your health or health history.
Your acceptance is almost guaranteed.
A caveat: Alzheimer’s disease or another advanced form of dementia will likely disqualify you, and additional requirements relating to citizenship, residency, and age may apply depending on the policy.
If you’re concerned about funeral costs, you can name a funeral home as your beneficiary. That way, the death benefit can be used to cover any associated expenses.
Guaranteed life insurance is usually expensive, and the coverage it provides is limited.
Depending on the policy you’re approved for, the company you’re insured through may not pay out the death benefit to your beneficiaries unless you’ve had the policy for two years.
The company will return the premium payments you have made if this happens, and sometimes they will refund more than you paid.
Group Life Insurance
If you’re currently employed, you might have access to group term life insurance through your employer. Most people who work for a company that offers group life insurance take advantage of it.
Because your employer subsidizes it, group life insurance is often available free or at a very low cost.
You also probably won’t have to answer health questions or undergo a paramedical exam, so if you’re older or have pre-existing health issues, you shouldn’t have trouble qualifying.
If you have the option, there’s no real reason not to opt-in to your employer’s group life insurance policy.
Group life insurance is meant to be supplementary, so it won’t provide as much coverage as a traditional individual policy.
Coverage by the policy is also conditional upon employment. If you retire or change employers, you’ll lose the policy. Occasionally, you may have the option of either porting or converting the policy.
Porting or converting the policy is generally more expensive than purchasing your own. Still, if you don’t think you’ll qualify for a traditional policy, it’s worth comparing the price to a simplified or guaranteed policy.
The primary drawback of group life insurance is that not all employers offer it. Even if your employer does, you may not qualify if you’re not a full-time employee or haven’t been with the company long.
How Life Insurance Factors Into Financial Planning
When you create a financial plan for your future, does your life insurance policy or lack thereof factor into it? If not, it should.
Life insurance can help you plan for tragic accidents, unexpected illnesses, and the inevitability of aging. Without it, you don’t have any guarantee that your family won’t be saddled with burial expenses, debt, or the charges from any medical treatments you might need.
If you don’t have life insurance, you will need a solid idea of where the money for any potential expenses is going to come from. You might be financially secure and living comfortably now, but what if something happens to you? What happens to your loved ones without you?
This isn’t a scare tactic, even if the idea of leaving your family unprotected is a frightening one. It’s common sense.
If we could predict the future, insurance underwriters everywhere would lose their jobs. As it is, the best any of us can do is prepare as much as possible, even for the unexpected.
There are a few extra hoops to jump through for people who aren't eligible for traditional life insurance policies. It’s more work, but it’s worth it in the end.
Discussing retirement planning at the same time as life insurance might not make sense to you at first. After all, if you end up using your life insurance policy, you’re not going to be able to retire, right?
Well, sort of. That’s not strictly true in all cases.
Some whole life insurance policies have what’s called cash value. It functions a little like a savings account. Over the course of your policy, it grows.
When you retire, you can use the cash value of your life insurance to add to your retirement income should you need to. Unfortunately, neither simplified nor guaranteed issue life insurance policies build cash value.
While that’s not great news if you’re relying on either of those policies, it’s good to know when you’re planning for retirement.
Group life insurance is a form of term life insurance, so it doesn’t build cash value either. If your employer offers a 401k, use that to your advantage when you begin planning for retirement.
Estate planning is more in line with what you might think of alongside life insurance. The two are closely linked.
Life insurance can be used in a variety of ways when it comes to estate planning, including:
- To pay federal and state estate taxes should they apply.
- To equalize an estate if assets aren’t easy to divide between multiple heirs.
- If you’re the co-owner of a business and your partner could use the funds to buy your share from your heir.
The death benefit from your life insurance policy can be helpful in other ways, too. Unlike the rest of your estate, it isn’t subject to probate court should issues arise. Instead, it goes to your beneficiary or beneficiaries.
The money isn’t tied up in probate court, so it reaches the people or organizations you have designated reasonably quickly. If your beneficiaries were relying on you for financial support, that can help ease the transition period between when you pass away and when your heirs can access your estate.
Be specific when you’re designating a life insurance beneficiary. Don’t designate a minor, and have a backup.
What a Financial Advisor Can Do for You
Planning for the future is challenging enough without attempting to navigate the life insurance industry. If you have a health condition, it can be even more confusing and frustrating.
Whether you’re battling cancer or living with a recently transplanted organ, you have better things to do with your time than sorting through insurance policy after insurance policy looking for something that will protect your loved ones if anything happens to you.
A financial advisor can help. Here at NextGen Wealth, we’re here to support you no matter where you’re at in your financial planning journey.
We can assist you with:
- Estate and tax planning
- Planning for retirement
- Risk management
- And more
When you work with NextGen Wealth, you can trust that we’re putting your interests first. We’ll sit down with you, look at your goals and create a plan to reach them.
Are you ready to map out your future? You can contact us to get started today. If you’re not quite at that point or not sure where you stand, you can schedule a free retirement checkup and we’d be happy to walk you through our process.