It’s been said that the only people who want to buy life insurance are those who are uninsurable or don’t qualify for life insurance. For those who are deemed uninsurable there are some options for life insurance that you will want to be aware of. Obviously, the younger and healthier you are, the lower your premiums. But what happens if you’ve recently been diagnosed with a critical illness or have a long and storied history of illness, are in a profession that is deemed “high risk” or because of lifestyle choices no insurance company will want to touch you because of the risk. So what are your options for life insurance when you’re no long able to qualify?
Reasons for Needing Life Insurance?
People need life insurance for any number of reasons. These are the most common reasons why people have life insurance
- pay final expenses
- to cover children’s expenses (cost of raising children, education costs)
- replace your income
- to pay off debt (mortgage, car loans, credit cards etc)
- buy a business partner’s shares
- pay off estate taxes
- privacy (proceeds of life insurance bypass probate and fall outside the direction of a will)
- direct proceeds to a charity
- tax efficient way to get money out of a corporation
Whatever the reason, life insurance fulfills a very important purpose regardless of one’s health. So if you don’t qualify for life insurance, what can you do?
- Max out your Group Life insurance at Work: Group insurance rates underwrite the group and not the individuals therefore whether you’re sick or healthy, old or young, your rates will be the same. Even if you leave the company, you have the ability to take your life insurance with you.
- Convert your group life policy to an individual policy: Even if you leave your place of employment, you should have the ability to convert your group life into an individual life policy
- Buy a Guaranteed Issue Policy: these policies don’t have very much underwriting attached to them, they are very costly compared to standard life insurance and typically have limited volumes available. They usually have limited pay-outs in the first two years of the policy (return of premium). You may have to approach a few different Guaranteed carriers to amass enough life insurance coverage.
- Simplified Issue: Simplified issue is life insurance without a medical examination. Usually there are a series of questions that need to be answered. The more questions that you’re able to answer favourably, the less the premium and the greater the volume available.
- Purchase Segregated Funds: If your intent is to get money into an heirs’ hands and bypassing probate then a segregated fund may be an option. As opposed to investing in a policy that is very expensive with limited death benefit, you may opt to invest in a seg funds which has a guaranteed death benefit, bypasses probate and offers creditor protection.
- Specialty Risk Insurance Carriers: there are insurance carriers that will only specialize in high-risk cases. If there is a need for larger amounts of insurance for high net worth individuals or businesses, specialty reinsurance companies can get involved. Often term insurance, as opposed to permanent insurance, is available. The terms on the contracts tend to be shorter (1-5 years), renewal is not automatic ie. insurance companies recalculate the risk before every renewal and have the ability to cancel a policy after a term if they feel the risk is sufficiently greater than originally, and the cost can be significant.
- Buy Term Insurance when you’re Young and Healthy: investing in a life insurance policy when you’re young may not make a lot of sense at the time but can give you lots of options down the road.
There are some incredible uses of life insurance. Many uses can be advantageous when you’re still alive, as opposed to thinking that life insurance only is beneficial to the life insurance policy holders’ beneficiaries. Some of the tax advantages of life insurance has been heralded by business owners, high net worth individuals, estate planning for years.
The risk of a change in one’s health, lifestyle choices, financial wherewithal all can impact your ability to get inexpensive life insurance or qualify at all. It’s important, at an early age, to buy a renewable term life insurance policy because once it’s issued, provided you continue to pay the premiums, you can maintain or convert it to a permanent insurance policy at some point down the road. Remember that no one wants to buy life insurance until they no longer qualify for it and require it!
Chris Coulter is the Founder and President of The Finish Line Group. He works with business owners to leverage their businesses to increase their wealth, reduce corporate and personal taxes, create viable succession strategies, enable employee retention strategies and allow them to exit their businesses on their terms.
Chris’ passion for what he does evolved from the mistakes he made in his first business; by not diversifying his risk and not utilizing a lot of the opportunities within his business to create significant wealth. Chris found out the difficult way and now educates business owners on how to avoid many of his former oversights and ultimately control where their finish line ends.