*As published in the July 2012 issue of FinanceWorks.ca

Life insurance isn’t like the majority of products and services out there. It’s not something you just buy: you have to qualify to purchase it.  This is frustrating for many people who would like to have life insurance but have a health issue that prevents them from acquiring the coverage they need. Fortunately, there is insurance for the uninsurable.

The term “uninsurable” may seem quite definite, however, with the variety of life insurance carriers and new products out there, being labeled “uninsurable” does not mean you cannot buy insurance at all.  Let’s look at some of the options available for the “uninsurable,” or to use a better term, “hard-to-insure”.

Guaranteed life insurance 
As the name implies, it’s guaranteed. Commercials state that “there’s no medical exam and the coverage is guaranteed for life,” and its true. Without a medical exam, however, the insurance company has no idea of the insured’s health and therefore imposes a two-year waiting period.

If the insured passes away from any other reason than by an accident, the family only receives the premiums paid plus interest. Coverage is also usually limited to $25,000.

Underwriting: the process in determining if an applicant is eligible for insurance based on an extensive medical investigation

Another issue is the cost to benefit ratio or how much you pay versus how much the policy pays out. For taking on such an unknown risk, insurance companies charge a significantly higher annual premium than with a regular, fully underwritten policy.

The premium for a $25,000 guaranteed issue whole life insurance policy for a 55 year-old man is around $106.19 per month, more than twice the $50.15 cost for an underwritten $25,000 whole life policy.

Simplified issue life insurance 
Simplified issue life insurance is somewhere in between a guaranteed life insurance and a regularly underwritten policy. Applicants have to answer a medical questionnaire that is a series of yes or no questions. As long as all questions are truthfully answered no, the policy is issued with no further medical tests or investigations.

Questionnaires can be brief or extensive, but usually there’s a progression of questions divided into sections. The more sections that the applicant can answer no to, the lower the policy costs. Maximum coverage with simplified issue policies is $150,000. 

Like with guaranteed policies, there is usually a two-year waiting period between the time the policy is issued and when coverage takes effect. However, policies that include extensive questionnaires sometimes provide full coverage as soon as the policy is issued, like any underwritten life insurance policy. 

Simplified issue life insurance is not only for those in poor health. Some opt for this type of policy to avoid a visit from a nurse or because they are squeamish about needles. Without an extensive medical examination, policies tend to be issued much quicker, which is a huge benefit for those who urgently want coverage.

The cost for this type of insurance is still more expensive than for underwritten policies but not nearly as much as for guaranteed insurance.

Regular life insurance

Cost to purchase a $150,000 policy for a 40-year-old woman, term 20:
Simplified issue: $29.16 per month 
Regularly underwritten $19.08 per month.

Being declined for regularly underwritten life insurance doesn’t mean you are uninsurable. The underwriting process sometimes uncovers medical conditions that the applicant previously unaware of. The blood and urine test, for example, may indicate that the applicant is diabetic. If the applicant did not know and hence did not declare it when applying, he or she is likely to be declined. Knowing now that they have diabetes, the applicant, with the help of a broker, can apply with carriers that provide insurance for those with diabetes, albeit for a higher premium (usually 50% more). Alternatively, if the condition is under control with diet and medication, some carriers will offer insurance at standard rates.

Even cancer doesn’t necessarily disqualify applicants from regular insurance. If cleared for over five years, underwritten insurance is certainly attainable. The policy may still be subject to a surcharge, however, it may still be preferred over a simplified issue policy with low maximums for coverage and higher rates. 

Cost to purchase a $150,000 policy for a 40-year-old woman that survived breast cancer 8 years ago, term 20:
Simplified issue: $34.56 per month 
Regularly underwritten $28.62 per month.

Everyone is able to get life insurance — it’s just a matter of finding the right coverage to fit your personal medical history and affordability. Working with a licensed life agent, you can remove the ‘un’ and just be insured.