FREQUENTLY ASKED QUESTIONS

If you are unemployed you may be wondering if you still qualify for life insurance coverage.  The short answer is yes, even if you are unemployed you can buy life insurance.  The amount that you can purchase may depend upon a number of factors though, including how long you have been unemployed, why you are unemployed, and if you have a spouse how much money they earn.  Here we discuss buying life insurance while unemployed, and the best strategy to get life insurance coverage if you do not currently have a job.  It is important to note, unemployment will not affect existing life insurance policies.

Recently Unemployed and Likely to Work Again

One of the easiest positions to buy life insurance in while not actively employed is if your loss of a job was recent and likely to be temporary.  Life insurance companies do not publish guidelines regarding how they treat someone laid off, but they are likely to take their cues from the department of labor, who identify long term unemployment as 27 weeks or longer (more than half a year).  If you have been unemployed for less time than this, and actively searching for another job with a similar salary, a life insurance company is likely to underwrite your insurable amount based upon your previous income.  These are likely not hard guidelines, and underwriters have the leeway to assess people on a case by case basis.  Regardless of whether you are short or long term unemployed, there are some things you may want to have ready to prove that you are likely to work again and worth the coverage:

  • Get your resume in order and be ready to provide it to the life insurance company to prove you are employable.
  • Write a letter explaining the reason for your unemployment and your plan for future employment.
  • Have assets.  If you have investment accounts, real estate property, savings accounts, or other things of value that are relatively liquid (easily sold and have a well-defined value), you are more likely to look insurable to an underwriter.

Not Looking for Work

If you are not looking for work, it is not impossible to obtain life insurance coverage.  Depending upon your reasons for not working, you may even have as easy a time as an employed person.  It is easier to break these into some common reasons and discuss each separately.

Can’t Find a Job

If you are unemployed because you can not find gainful employment, you will have a tougher time getting a traditional life insurance policy issued.  You can try, but your application may be rejected or you may only qualify for a small policy.  Your best bet is to prove that you provide something of value to your family such as childcare, or to find a job.  If you need help finding a job, USA.GOV can help you find a federal job or a job in the private sector.  Federal jobs can provide great benefits and may include life insurance, such as through the Federal Employers Group Life Insurance Program.

Stay at Home Parent

The good news is that a stay at home parent is considered to be working!  Childcare is not inexpensive.  The value of the work provided is significant and valuable, and if married, the death of a stay at home parent may impact the earning power of the currently working parent.  Generally, the insurance company will want to see the income-earning parent have life insurance in place first.  They will then be willing to issue coverage on the non-working parent in an amount equal to the policy size of the working parent, up to a certain amount which is generally about 2 to 3 million dollars depending upon the company.

Even if you are a single stay at home parent, you are providing for your children in a valuable way.  If you were to pass away, the loss of value would be immense.  A life insurance company will certainly consider a single stay at home parent insurable.  The amount of insurance that you will qualify for will depend upon a number of factors such as how you are providing monetarily for your family if you have any assets to speak of, and how long the children will be dependent upon the care.  You will just need to be ready to explain the situation fully to the insurance company.

Stay At Home Spouse

If a spouse does not work they are likely to qualify for insurance even if there are no kids.  Spouses are always considered to have an insurable interest in each other by law.  Generally, the working spouse will need life insurance coverage in place first and the amount of life insurance that the non-working spouse can obtain is capped.  Even if life insurance is not in place for a working spouse, a company will generally issue a policy on the unemployed spouse but the limits will depend upon the specifics of the situation.  It is best to work with an experienced agent or company to get through the nuances of the situation and to obtain the most coverage possible.

Retired or Wealthy

If you are retired or wealthy enough so that you don’t need to work, you can still buy life insurance.  There are many reasons that someone may want to do this such as estate planning to pass assets to people tax-free or to help split an estate evenly if one large item that can not be split is involved such as a valuable painting, to donate a large amount to charity, or you may even buy a policy as an investment vehicle.  Whole life insurance has a positive rate of return in most cases because of the dividend payments, and it can provide a nice risk-adjusted rate of return for wealthy individuals.  If you are retired or wealthy, you probably need permanent insurance, and you should work with an agent with a Chartered Life Underwriter (CLU) designation in order to get the best value and return for your money.

You are Disabled

If you are disabled it may be difficult to obtain a traditional life insurance policy for a few reasons.  The first is that a medical disability is likely to affect your life expectancy, though this is not true in all cases.  If your disability is likely to shorten your life significantly a life insurance company may make your policy very expensive or they may not be willing to issue a policy.  The second important reason that it can be difficult to obtain coverage is that you can not earn an income again.  If your disability is permanent, it is a difficult case to make to an insurance company that there is a monetary loss resulting from your death.  There may be special circumstances, so this is not necessarily a hard rule, but generally, life insurance companies will decline these applications.  A special kind of life insurance such as burial insurance, or guaranteed life insurance may be options but these are probably not worth the added cost.  If you are temporarily disabled, this is a different situation and you probably do qualify for life insurance.

Life insurance policies usually have an optional rider available at time of purchase called a waiver of premium rider, or disability income rider.  A waiver of premium rider will waive any life insurance premiums if you become disabled.  A disability income rider will actually pay you income at a certain rate until the age defined in the contract.  If you have existing life insurance you should see if you have one or both riders on your policy.

You Are a Student

The life of a college student, especially a graduate student, is likely to be considered financially valuable to a life insurance company because of the cost of school and the future earnings potential.  Oftentimes, a parent will take out a policy on a student that they are paying for so that they are not saddled with loans if the student dies.  A spouse may also want to have insurance on a student for the same reason or to obtain insurance coverage now in order to lock in insurability and price, with the financial basis being based upon future earnings potential.  Students do generally qualify for life insurance coverage even though they are not employed.

Life Insurance Considerations if you are Unemployed

If you are unemployed and looking for life insurance coverage here are some important considerations to help you get the right policy for the best price and the optimal amount of coverage.

  • Clearly define why you need life insurance and the amount of coverage that you need.  Work with an agent to help define these two things because they will determine how you go about getting coverage.  If you only need a small amount of insurance, are there other ways to get it such as through a spouses’ benefits package?
  • A term life insurance policy is probably the best type of life insurance for unemployed people because it is the least expensive.  If you are a stay at home parent or spouse or are already wealthy, these are exceptions that may warrant a permanent form of life insurance such as whole life.
  • If you are unemployed because of issues surround the novel coronavirus pandemic (COV-19), you likely qualify for life insurance.  Life insurance companies are adapting daily to the pandemic and you may face some restrictions depending upon where you live any recent travel history.
  • Unemployment does not mean that you are not valuable or that you don’t qualify for life insurance.  Working with an experienced agent can help you get the coverage that you deserve in order to provide for your loved ones in a time of need.
  • Don’t surrender an existing policy just because you are unemployed.  A permanent policy may be able to pay for itself with dividends, or from cash value or loans.  You also need to consider the long term picture.  If you can still afford your policy this can be valuable protection for your beneficiaries.  If you have a health condition today, you may not be able to get a new policy, or it may be much more expensive.  Consider keeping your coverage, and only surrender it as a last resort.  You can also reduce your face amount, and your premiums, by filing paperwork with the insurance company.

Where Else Can you Go For Life Insurance

You can consider applying for a guaranteed issue life insurance policy, as these are rarely declined for any reason.  You can also apply for a small burial policy or “final expense policy”.  You could also “self insure”, and regularly contribute money to an account that will build over time.  The intent would be to pass this money on when you die.  Or, maybe you do not really need life insurance.  It is important to consider all of the options.

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