Can Someone Buy Life Insurance When They Are Dying?

guaranteed issue life insurance

The last thing an insurance company wants to do is sell someone a life insurance policy and then only weeks or months later have to cut them a check for a large death benefit.  It is OK if it happens on a rare basis, but their business model is built on most people living for a long time after they buy a life insurance policy.  Insurance companies need to manage their risk of someone dying, and they do things like giving their potential customers a blood test and reviewing their medical files.  Even life insurance which is touted as “no medical exam,” probably still requires a search of the prescription drug database and asking the potential customer several questions which they must answer truthfully.

There is one type of life insurance someone dying can buy, and that is guaranteed issue life insurance.  Everyone in a particular age range (typically 50-80) qualifies for this type of insurance, regardless of medical history.  Death benefit amounts are small, typically $5,000 to $25,000.  The application is typically very simple; perhaps one page of information abot you and your beneficiaries.  There is a catch, however.  If someone dies in the first two years, they typically only get their earned premiums back plus interest (perhaps 10%).  So while someone can buy it while they are dying, they won’t receive the death benefit unless they can survive for 2 more years.  That being said, getting your earned premium back isn’t that bag of a deal.  Assuming the insurance company doesn’t go under (which is in theory very unlikely because most of the insurance companies out there offering this product have an extremely favorable credit rating), getting a 10% return on a completely passive investment doesn’t seem like that bad of a deal.

Hypothetically, let’s say a female aged 70 has to pay about $2000 per year for a $25,000 guaranteed issue life insurance policy.  She has cancer and sadly may not live another 2 years.  If she lives 1 year, her heirs get $2200.  If she lives over 2 years, her estate gets $25,000.  It is sad and morbid to think about, but it wouldn’t be the worst idea in the world to pass along this potential set of outcomes to your heirs.  Obviously people have a lot on their minds when they have a terminal disease, and buying life insurance may not be a fun way to life your spirits.  However, it can make financial sense for those that are willing to consider it.

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