Sunday, October 9, 2011

Life Insurance Options for People with Poor Health or that are Overweight / Obese

If you have bad health and are wanting life insurance, you likely have more options than you think.

ANYONE can get life insurance, no matter what your health situation is. This is true even if you are currently receiving treatment for things such as a recent Heart Attack, Cancer, a Stroke, or Parkinson's disease. If you have had treatment for any of these things in the last 2 years, the ONLY type of life insurance policy that you will likely qualify for is one with a Modified Death Benefit.

Modified Death Benefit - if you have received treatment within the last 2 years for your health condition(s):
Life insurance policies with a Modified Death benefit are often "Guarantee-Issue", meaning that no matter how bad your health may be, you will be accepted. The premiums on these types of policies are higher than standard life insurance policies.
These types of policies usually won't give you the full death benefit until the 4th year that the policy has been in force. If the insured passes away during the first few years, the premiums are returned with interest to the beneficiaries.
Let me give an example to further illustrate:
John had a heart attack 4 months ago. He purchases a Modified Benefit Life Insurance Policy with a $10,000 death benefit. If John dies within the first 3 years after he purchases the policy, his wife will receive all of the premiums that they had paid in during those years, plus 10%. She will NOT receive $10,000.
If John dies AFTER having the policy for 3 full years, his wife will receive the full $10,000 tax free.

Immediate Death Benefit - if your health condition(s) have been stable for 2 years or more:
If your health condition(s) have been stable for 2 years or more, there is a very good chance that you can get life insurance with Standard/Normal Rates, and have an IMMEDIATE death benefit the day after the policy is in force.
Here is an example:
Sarah was diagnosed with cancer 5 years ago. She underwent treatment and took medication for a couple years and was pronounced "cancer-free" by her doctors. She has now been free of cancer for more than 2 years and wishes to apply for a $100,000 life insurance policy. Sarah will likely get accepted with a Standard Rating, and will be immediately covered from day one. Her beneficiaries would receive the full $100,000 tax-free death benefit even if she passes away the day after taking out the policy.

If you are Overweight / Obese:
Many insurance companies don't care what your weight is, but most companies do. If you are overweight, you will be limited on your options. You will probably have to get a Whole Life policy with a death benefit of $35,000 or less, or go with a company that is very liberal with their height/weight requirements. If you can pass the height/weight requirements with such a company, you will probably only be able to get a Simplified Issue policy. This means that you probably will not have to take a medical exam, but your rates will be a bit higher than they would be with another company that has stricter height/weight requirements. You also may not be able to get as high of a death benefit as you would like.
To sum it up: If you are getting a Whole Life policy, you will have few (if any) restrictions. If you are getting larger Term or Universal Life policy, it will have to be with a company that has liberal height/weight requirements, and will probably pay higher rates.

Thursday, October 6, 2011

Whole Life Insurance vs. Universal Life Insurance

A lot of my clients ask me: What's the difference between Whole Life Insurance and Universal Life Insurance?

There are many differences between the two. Here are some of the main ones....

Difference #1: How long the policies will last
Both Whole Life Insurance and Universal Life Insurance can be designed as Permanent life insurance policies, meaning that as long as you pay the premiums, which are determined when the policy is issued, they will last until you die. All Whole Life Insurance policies are set up this way. But NOT all Universal Life policies are. Universal Life Insurance policies can be set up to expire, or lapse, at almost any age you desire. A Universal Life Insurance policy that is illustrated to lapse at age 90 will have a lower premium than one that is guaranteed until age 121. Universal Life policies often have a "No-Lapse Guarantee" rider included, which ensures that the policy will not lapse as long as the guaranteed minimum premium payment is made.

Difference #2: Cash Value Growth
Both Whole Life Insurance and Universal Life Insurance grow a cash value within the policy. Whole Life Insurance does this at a guaranteed, fixed rate, determined when the policy is issued. Universal life does this at a non-guaranteed rate, with a "worst case scenario", minimum rate guarantee.
For Example...
A Whole Life Policy might have a fixed interest rate of 3%.
A Universal Life policy might have a current interest rate of 4.5%, and a minimum guaranteed interest rate of 2%.
If I were to purchase the Whole Life Insurance Policy, I would know the exact cash value that my policy will have in year 5, 10, 20, and every other year that I own the policy.
If I were to purchase the Universal Life Insurance Policy, I would NOT know what the cash value would be. I would only know what the cash value would be IF the interest rate stays the same. The interest rate could go up or down throughout the life of the policy. Life insurance companies send out periodic statements showing the policy values to their Universal Life Insurance policyholders.

Difference #3: Size of Death Benefit
Typically, Whole Life Insurance is used for quick issuse Final Expense / Burial purposes and have death benefits ranging from $1,000 - $30,000 (although many companies offer Whole Life Policies much larger than this).
Universal Life Insurance Companies tend to require a minimum death benefit of at least $25,000, and many require a minimum of $100,000. Universal Life policies are often used to replace a family member's income, pay off debts, pay death taxes, or provide a tax-free inheritance to the insured's heirs.

Difference #4: Premiums (how much you have to pay for the insurance)
This is the difference many people care about the most. Universal Life Insurance policies tend to have lower premiums than Whole Life Insurance policies. One reason for this is the underwriting process involved.
Whole Life Insurance can often be purchased by simply filling out a Yes/No application and (sometimes) doing a short phone interview. Most insurance companies will decide if you are accepted within a week.
Universal Life Insurance is usually Fully Underwritten. This process usually requires a medical examiner to come to your home or meeting place of your choice. The examiner will often take a urine sample, blood sample, and check your blood pressure. The insurance company may also decide to check your Driving Record and get an Attending Physicians Statement (APS). It usually takes 2 weeks to over a month to get an acceptance decision on Universal Life.
Because of the longer, more precise underwriting process of the fully-underwritten Universal Life Policy, the premiums you have to pay are usually much lower compared to Whole Life.
Another reason Universal Life policies can have lower premiums is the how the cash value growth is designed in the policy.  You can fund a Universal Life policy in a way which it accumulates very little, if any, cash value.  This will make your life insurance premiums much lower than if you designed your policy to have a larger cash value growth.

So which should I buy? Whole Life or Universal Life?
Each person's situation requires a different answer... but in general, if you are looking at getting a policy greater than $25,000, are in good health, and don't mind having a medical exam; Universal Life is a good option.
For any other situation, Whole Life Insurance is likely the way to go.