Can Someone Buy Life Insurance When They Are Dying?
Put Yourself in the Insurance Company’s Shoes
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.
The Unique Case of Guaranteed Issue Life Insurance
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 about 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%).
Insured Typically Must Survive for 2 Years
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 bad 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 isn’t a bad worst case investment scenario.
Hypothetically, let’s say a female aged 70 has to pay about $2000 per year for a $25,000 guaranteed issue life insurance policy. These policies often require the first month or a relatively small amount upfront followed by monthly payments.
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. And typically life insurance receives a favorable tax treatment.
Conclusion
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 lift your spirits. However, it can make financial sense for those that are willing to consider it.
The next step if you were willing to move forward with it would be to talk to your insurance agent or financial advisor.
God bless you during this difficult time.
