One of the first and most important steps of buying high risk life insurance is to do your research and gather as much information as you can. Each company won’t necessarily tell you all the options that are out there, they will just focus on what they offer.
Insurance companies make their money when the insurance that a person has bought is not claimed. This makes offering high risk insurance tricky for them, as a high risk customer is more likely to make a claim. So, to safeguard their profits, they will put you through an underwriting process to screen all applicants.
The aim of the underwriting process is to find out as much personal information they can about you. It usually starts by filling out an extensive form that covers your entire health history, eating and exercise habits and also to ascertain if there are any recreational or occupational activities that would increase the risk of death.
In some cases they will direct you to do further medical tests, so they get an exact picture of your medical status. This allows them to make an educated guess as to what your needs maybe. Depending on the results, you will be put into either low risk or high risk category.
A person in a high risk category will have to pay higher premiums. For example, a 40 year old that weighs over 250 pounds and has diabetes, will have to pay a higher premium, than a healthy 40 year old that weighs 145 pounds. In the worst case, they could refuse to insure you.
The underwriting and evaluation process is different with each insurance company, so if you are unhappy with a quote, it is definitely worth shopping around and consulting with an experienced agent. Chances are you will be able to find a policy that is affordable for you.
There are two main kinds of high risk life insurance;
Permanent Life Insurance – This is when you pay for the insurance your whole life. Although a permanent plan cost more and is less flexible, there are several benefits such as:
- It has a cash value and enables financial planning as well as policy loans if you have an urgent need for cash.
- As you pay for a permanent plan all your life, your beneficiaries are sure to be able to collect after your lifetime.
- After some time the cash value can pay the premiums.
Term Life Insurance – This provides for the beneficiary, should the insured person die during the specific period for which the insurance is taken. This can be purchased for a period of five years to more than 25 years. After this time, the policy dissolves and you need to take a new insurance plan.
Some points of a term life insurance plan:
- It is generally less expensive than a permanent plan.
- It has no cash value, you cannot take a policy loan and there are no investments.
- It can be used to cover the years of greatest need, such as when children are very young. After the particular crucial time, you can take another policy which will suit your present needs and budget.
These are some possibilities for someone in a high risk category:
- Find out if your organization or employer offers a group life coverage plan, and see if you are eligible for it. This may be a good option for someone at high-risk, as there is usually no individual underwriting because the insurance company depends upon the whole group.
- Get a permanent life insurance plan as opposed to a term life insurance plan. An insurance company will be more liberal when it comes to screening on a permanent insurance plan.
There are high risk life insurance policies that require no underwriting. Even though they have very high premiums, they do not have many benefits and there is a two year waiting period before any beneficiaries can collect anything. However, in certain cases this type of policy may be the only option.
- If possible, try to address the health concerns that are putting you in the high-risk category; weight loss, diet, exercise, reducing alcohol and quitting smoking.
After some time, reapply for a high risk policy. If you have changed your lifestyle, you could become eligible again. If you have recovered from your illness or your cancer has not recurred within several years, more options will open up for you.
- Put away the money you would spend on high premiums and build a nest egg for your loved ones.
The key aspect of high risk life insurance is that it is very individual. The extent of coverage and premium payments will differ greatly from person to person. The type of policy your friend got may not be possible for you. Your best option is to shop around and find one that is suitable for you.