Terminal illness can make obtaining life insurance difficult, but not impossible. Several companies offer life insurance specifically for people who are ill. It's important to review the policies carefully to make certain that a new life insurance policy makes financial sense for you and your family.
Life insurance policies available to the terminally ill are normally whole life policies. Whole life policies offer guaranteed premiums and a guaranteed benefit paid to the designated beneficiary. The policies ask few or no health questions and, according to the New York State Insurance Department, these policies are often more expensive than policies that require more underwriting (evaluating the risk to the insurance company).
Graded Benefit Policies
Companies that offer policies with no underwriting protect themselves through a "graded benefit." This means that if the insured person dies during the first two years the policy is in effect, the death benefit paid out will be less than the full amount. Usually, the benefit is a combination of the premiums paid and interest earned.
Policies that a terminally ill person can buy are more expensive than policies a healthy person of the same age could qualify for. The face amount, or death benefit, available is also limited, according to the National Association of Insurance Commissioners.
Comparing Policy Quotes
It's important for anyone to do a careful comparison of policy quotes, and even more so for the terminally ill. In addition to comparing the death benefits and premium amounts, check any policy exclusions, graded benefits and the length of the "contestability period." The contestability period is a period of time, normally 2 years, during which the insurance company can void the policy if it discovers any inaccuracies on the application. Once you choose a policy, review it carefully. You will have a period of time, usually 30 days, to return the policy to the company if you don't want it, and they are obligated to cancel it and return your premiums. This is called a "free-look" period.
Having life insurance can help provide for a family in a time of need. Being diagnosed with a terminal illness is certainly a time of need, but life insurance may or may not be a help. Review your financial situation, and be certain the premiums are affordable and that you're not paying in more than what the policy is worth. Life insurance policy benefits are normally income-tax free, which may impact your decision as well.
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