An older client came to us recently looking for a way to provide for his heirs, but he thought that life insurance wasn’t an option for him because he had diabetes. A lot of people with pre-existing conditions are just like this client — they write off getting life insurance without even trying because they’re convinced they’ll just get denied.
What these people don’t know is that there are actually affordable life insurance options, even if you have pre-existing conditions. Most people don’t start thinking about life insurance until they’re past retirement anyway, so it stands to reason that insurance companies must find a way to work with them. Knowledgeable life insurance advisors can offer many life insurance options to someone with pre-existing medical conditions, and these options won’t be limited to expensive, high-risk policies.
When Pre-Existing Conditions Are a Barrier and When They’re Not
A lot of the individuals who think they might not be able to get life insurance due to pre-existing conditions don’t understand that some conditions might not disqualify them. For example, many life insurance companies will write policies for people with diabetes provided their diabetes has been controlled for six months or more. When you make an effort to improve and manage health conditions, they are far less likely to act as a barrier in getting the insurance you need.
The same goes with those who’ve been diagnosed with life-threatening illnesses who are now recovered. When someone has reached remission from cancer and continues to have a strong prognosis, there might be plenty of companies that are willing to provide coverage.
You shouldn’t rule yourself out if you have certain pre-existing conditions if you’re managing those conditions. Most of the time, a company will only refuse to cover you for life insurance if your health is in serious jeopardy due to one of these pre-existing conditions. Even if these conditions do rule you out for a regular policy, you may still be able to get a survivorship or second-to-die policy.
Piggybacking on a Spouse’s Policy
When you get a survivorship policy, you might be able to use the good health of your spouse to get coverage you couldn’t otherwise. In these cases, the policy generally doesn’t pay out until the second spouse dies. As a result, both of your health conditions are taken into account. This allows many to get a favorable life insurance policy when they otherwise wouldn’t be able to. Keep in mind the option for this would be a second-to-die or survivorship policy.
There is another type of joint policy called a first-to-die policy. This probably won’t work in a case in which one spouse has significant health problems, for obvious reasons. A survivorship policy gives the insurance company the added peace of mind that payment won’t be due until the healthier spouse passes away. In a first-to-die policy, they don’t get this peace of mind. First-to-die policies are better for those who have children under the age of 18 or are looking to pass on business interests.
A survivorship policy can be a good option for providing for heirs because it creates tax-free wealth and might be obtainable those who suffer from poor health. This type of policy can be used within a trust to help build an estate plan and may help those with prior health issues avoid the high cost of guaranteed issue insurance. However, there are still other alternatives for those who have had health problems. One such option is to look at the opposite of life insurance — the annuity.
Using Annuities as Life Insurance
Annuities are often considered the opposite of life insurance because they are insurance designed to protect you from living too long and running out of money. However, a fixed annuity with a death benefit rider can act as part of your legacy plan if you’re unable to get a traditional life insurance policy.
Death benefit riders can vary widely by policy. Some may transfer the annuity payments to a new beneficiary while others may pay out an enhanced lump sum similar to a traditional life insurance policy.
Of course, annuities do not offer tax-free death benefits and the degree of leverage offered by life insurance policies is far greater. Annuities are excellent for asset protection depending on your state of residence as well as for income and principal protection. However, if you are seeking to eliminate or reduce estate tax costs, life insurance policies should always be your go-to.
If you have health concerns that might limit your options, you’ll want to work with an independent advisor who can provide a wide range of choices. All insurance companies have different requirements, so what disqualifies you from one policy might not disqualify you on another.
At Howard Kaye, we work with more than 50 highly rated insurance companies and in the past, we’ve been able to find policies for many clients with pre-existing conditions or annuity needs. Contact us at 800-DIE-RICH for more information on finding the right policy to provide for you and your heirs.
