Are Some Types of Life Insurance Harder to Get Than Others?
Life insurance is one way to protect your family from financial hardship combined with the hardship of an unexpected death. It's such an important vehicle of financial security that even notably insurance-unfriendly finance gurus like Dave Ramsey recommend life insurance for all working families. Not all life insurance is created equal, meaning that some kinds of insurance are more difficult to get than others.
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Term vs. Life
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Term life insurance works like most other forms of insurance: you pay premiums for a set time period. If you die during that period, the insurance company pays out. If you don't, they keep your money. Whole life insurance covers you until you die, and is priced to account for the certainty of death. People with some health problems that would disqualify them for term life insurance may still qualify for a whole life policy.
Grades of Insurance
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Most life insurance providers offer grades of insurance with labels like "preferred" and "elite." The names and qualification levels for each will vary from provider to provider, but they all boil down to a reflection of medical risk. The better your health and medical history, the higher grade you will qualify for. Higher grades equal lower annual premiums, which may be presented either as a reduced payment or an increased benefit. As might be expected, it is harder to qualify for higher grades than for lower grades of the same policy.
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Amounts of Coverage
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The higher the face value of an insurance policy, the greater the risk to the issuing company. This interacts with how difficult it is to get a policy in two ways. Some companies will set stricter qualification standards at certain thresholds for coverage. Even when a company doesn't do that, it may require more rigorous verification of eligibility for higher amounts. For example, a $20,000 policy might require a medical questionnaire, while a $250,000 policy would require a full physical including blood work.
Group Life Insurance
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Group life insurance is often the easiest kind of life insurance to qualify for. This is because a group life policy is negotiated by a group of people, such as a large employer or a labor union. In many cases, the group life contract requires the insurance company to cover all members of the group, regardless of their health status or other factors. However, group life insurance policies tend to be relatively small, often barely enough to cover burial expenses.
Insurance Provider
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Different life insurance providers have different standards for issuing insurance. If you fail to qualify for coverage with one provider, it's worth checking with the competition. Although there are always exceptions, different "tiers" of insurance companies often have similar standards. If you're denied by a major national chain like State Farm, you should investigate second-tier companies like American Income rather than Allstate.
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References
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