Life Insurance With Pre-existing Medical Conditions

Many individuals with pre-existing conditions do not think that they can buy life insurance. However, many insurance companies exist that will offer certain policies that allow individuals with health problems to purchase life insurance. Applying for this kind of insurance requires that the insurance company use something called "reinsurance" to spread out the risk of the policy that it is underwriting.

Significance

Being able to buy life insurance with a pre-existing condition means that you do not have to retain all of the risk of insuring your life with your own savings. This allows you to make purchases and accumulate liabilities that you would not ordinarily be able to do without the significant risk that you could end up leaving your family with a lot of bills if you died unexpectedly.

Size

The policies you can buy with pre-existing conditions are often limited to small face amounts. This limits the risk to the insurance company and allows the insurer to spread even that small amount of risk among several other companies if necessary. Typical face amounts (death benefit amounts) might range from $25,000 to $50,000.

Types

Generally speaking, guaranteed issue whole life is the most common type of life insurance used for impaired risk cases. Impaired risk refers to insuring individuals with pre-existing health conditions that are serious enough that they would not qualify for other types of insurance. Whole life insurance is simple to understand and is guaranteed to remain in force for the life of the insured, provided that policy premiums are paid.

Misconceptions

A common misconception is that an individual is disqualified from buying life insurance if he has any pre-existing health conditions. The reality is that impaired risk or guaranteed issue life insurance allows most people to buy life insurance, even if they have been turned down by other carriers or would not qualify for other types of life insurance.

Considerations

Before buying guaranteed issue life insurance, make sure that you understand that even though you can purchase life insurance with pre-existing medical conditions, it will cost you. These policies are usually more expensive than traditional policies. Because there is an increased risk to the insurer, there is a premium charged on the policy to compensate the insurer for the added risk of making the policy a guaranteed issue policy.

References

• "Ernst & Young's Personal Financial Planning Guide, 5th edition;" Martin Nissenbaum, Barbara J. Raasch, Charles L. Ratner; 2004
• "Practicing Financial Planning for Professionals, practitioner's 10th edition;" Sid Mittra, Anandi P. Sahu, Robert A Crane; 2007
• "Life & Health Insurance, License Exam Manual, 6th Edition;" Dearborn Financial; 2004