Life Insurance Policies for Preexisting Conditions
Purchasing life insurance when significant health issues are at play is extremely challenging. Life insurance companies obviously prefer to insure those in good health. Fortunately, insurance companies do exist that specialize in impaired risk life insurance, allowing you to purchase insurance even with a preexisting health condition.
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Process
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Applying for life insurance when you have a preexisting condition is not like applying for life insurance when you're healthy. Instead of simply submitting an application to an insurer, you must contact a life insurance broker who specializes in impaired risk life insurance. Disclose your situation. You may have to talk to several brokers before finding one who deals with companies that allow preexisting conditions.
A broker will help complete the life insurance application and may also prequalify you for an insurance policy. The broker will then consult with the underwriters at the chosen life insurance company prior to submitting the application. You may receive a preliminary offer from the insurer based on the information that the broker submits to the insurance company -- or you may be required to undergo a full underwriting process, such as a health exam. In some cases, the insurer will issue a "guaranteed" policy, which gives you a limited amount of coverage or may offer death benefits that accumulate over time. A final offer is sent from the insurance company through your broker, along with a request for the first premium payment.
Significance
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When buying impaired risk insurance, it's important that you disclose all health information. The more details you provide to your broker and the insurance company, the easier it is for the insurer to assess your risk. Providing less information may increase your premium unnecessarily. This is because an insurer may charge a higher premium for unknown information.
When submitting applications through your broker, you may hear the term "impaired risk" and "guaranteed whole life." The type of policy you receive depends on the company issuing the policy, but many impaired risk policies are whole life policies.
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Benefit
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The benefit of an impaired risk policy is that you are able to purchase life insurance when you otherwise would not be able to. Your family gets the death benefit of the policy just as they would if you had purchased any other type of life insurance. Death benefits are tax-free and your premiums are normally level for the life of the policy. In addition, your policy is usually a permanent policy that builds cash value over time. A cash value is a cash reserve that accumulates with the death benefit. This cash reserve may be used during your lifetime and can be borrowed against for any purpose.
Disadvantage
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The disadvantage to impaired risk life insurance is the cost. Because you have a preexisting condition, life insurance premiums on guaranteed life insurance policies may be five to 10 times the cost of ordinary life insurance. This increased premium reflects the risk an insurer takes by insuring those with a health condition.
Additionally, some impaired risk policies offer graded benefits. This means that the policy's death benefits are not fully payable when the policy is first issued. Instead, benefits build over time. Your death benefit is equal to your premiums paid plus an interest factor set by the insurance company. This benefit grows over time until it reaches the death benefit face amount listed in the policy contract.
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