Unemployed And Need Life Insurance? Here's What You Can Do

Unemployment can be a tricky time for many, and it's natural to worry about the future and what it holds. One of the concerns that may arise is whether an unemployed person can get life insurance. The short answer is yes, but there are a few things to keep in mind. While unemployment doesn't automatically disqualify you, insurance companies will consider it a risk factor and evaluate your application more rigorously. They will want to ensure you can pay the monthly premiums and may ask about your assets, such as property or savings, to determine your financial stability. The length of unemployment is also crucial, with shorter periods of unemployment generally viewed more favourably. If you've been unemployed for six months or less and are actively seeking employment, your previous income level will likely be considered. If you're unemployed long-term, insurers will want to know why and assess the financial burden on your loved ones if you pass away. It's essential to be transparent and provide all the necessary information to improve your chances of getting coverage.

How long has the person been unemployed?

The length of unemployment is a critical factor in determining an unemployed person's eligibility for life insurance. While unemployment does not automatically disqualify an individual from obtaining life insurance, long-term unemployment, typically defined as being out of work for six months or more, can pose challenges.

If an individual has been unemployed for six months or less, they may not encounter significant difficulties in obtaining life insurance. Insurance providers generally evaluate these applicants based on their previous income, financial stability, and the likelihood of finding employment soon. Factors such as assets, including homes or vehicles, can demonstrate financial responsibility and improve their prospects.

However, if an individual has been unemployed for more than six months, insurance companies may have heightened concerns about their ability to pay premiums. In such cases, applicants may need to provide additional information and demonstrate their financial viability. For instance, they may need to show that their loved ones will suffer a financial loss if they pass away.

The key consideration for insurance companies is the applicant's ability to pay the policy premiums. Therefore, those who have been unemployed for a shorter duration and can showcase financial stability are more likely to be approved for life insurance.

What is the reason for unemployment?

Unemployment is a pressing issue for many governments and economies worldwide. It is influenced by a combination of domestic, foreign, market, and government factors, which can be broadly categorised as cyclical or structural. Cyclical unemployment is related to economic cycles and is often temporary, while structural unemployment is independent of economic cycles and requires more long-term solutions. Here are some specific reasons for unemployment:

Frictional Unemployment

Frictional unemployment occurs when individuals are voluntarily between jobs, such as recent graduates or those transitioning between careers. This type of unemployment is normal and healthy for an economy as it allows for a better match between job seekers and available positions. However, it can be influenced by factors like imperfect information and the time required to find suitable employment.

Structural Unemployment

Structural unemployment arises from a skills mismatch in the labour market. It can be caused by occupational immobilities, where individuals face challenges in acquiring new skills for emerging industries. For example, a farmer may find it challenging to secure a job in high-tech industries. Geographical immobilities also play a role, as individuals may struggle to relocate to find work due to factors such as accommodation or schooling for their children. Additionally, technological advancements can lead to labour-saving innovations, reducing the demand for certain types of labour.

Classical or Real-Wage Unemployment

This type of unemployment occurs when wages in a competitive labour market exceed the equilibrium point, resulting in a surplus of labour supply over labour demand. Factors like minimum wage policies or the influence of trade unions can contribute to this situation.

Voluntary Unemployment

Voluntary unemployment happens when individuals choose to remain unemployed rather than accepting available job offers. This can occur when social benefits are generous, and individuals prefer to rely on those benefits instead of working. Frictional unemployment can also be considered a form of voluntary unemployment, as individuals may opt to wait for a better job opportunity.

Demand-Deficient or Cyclical Unemployment

Demand-deficient unemployment is linked to the business cycle and occurs when the economy operates below its full capacity. During recessions, for instance, aggregate demand decreases, leading to reduced output and negative economic growth. As a result, firms employ fewer workers, and some businesses may even go out of business, leading to redundancies.

These are some of the key reasons for unemployment, but it is important to note that the causes can vary across different countries and economic contexts.

What is the financial situation of the unemployed person?

The financial situation of an unemployed person can vary widely. Some unemployed people may have a steady stream of income from investments, retirement funds, or government benefits, while others may have little to no income at all. Regardless, unemployment can impact your ability to get a life insurance policy.

When it comes to securing life insurance, your risk level is very important to the insurance company. The higher the risk you present to the company, the more you'll usually need to pay in premiums. For many insurance companies, it's important that there is a degree of certainty that you're able to pay your monthly premium for the long term without a lapse. If you're unemployed, that often impacts your financial situation, which can make you seem riskier compared to someone who has a job in the eyes of an insurer.

However, unemployment does not automatically disqualify you from getting life insurance. Many insurers will still offer policies based on your ability to pay the policy premiums. If you're recently unemployed, the amount of coverage you can get will be based on your previous income. If you're long-term unemployed, you can get a policy if you can demonstrate to the insurance company that your loved ones will suffer a financial loss if you die.

If you've been unemployed for six months or less, you shouldn't face too much difficulty finding a life insurance policy. The shorter your period of unemployment, the better, so it's best to apply early in your unemployment if you can. The insurer may ask you to provide supplemental information, such as an accounting of your assets, to prove your financial stability. For example, if you own a house or have a sizable savings account, the insurer could use that information to verify that you have a level of financial responsibility that requires insurance.

If you've been unemployed for more than six months, getting life insurance can be more difficult. The insurance company will have questions about why you're not working and what the financial burden will be on your loved ones if you pass away. In these cases, you can improve your chances of getting approved for life insurance by lowering your coverage needs, choosing a more affordable insurance option like term life insurance, stating your case and providing a resume and letter explaining your situation, and revealing all your assets to demonstrate financial responsibility.

What type of insurance is best?

If you're unemployed, you can still get life insurance coverage from many insurers, although your eligibility depends on the reasons you're not working and how long it's been since you last earned an income. Generally, if you've been unemployed for six months or less, you are more likely to be approved for a policy.

Term life insurance

Term life insurance is the most cost-effective option for most people and is significantly cheaper than permanent life insurance. It is also a good option if you are unemployed, as it will provide coverage for a set period, usually anywhere from 10 to 40 years, at a lower cost.

Lower term and coverage amount

If you're unemployed, you may need to lower your coverage amount to keep your premiums within your budget. While it's not ideal to have less life insurance than you need, some coverage is better than none. You can always increase your coverage amount later when your financial situation improves.

Shop around

Different life insurance companies assess health and financial situations differently. By shopping around and comparing multiple insurers, you can find the best rates and a plan that suits your needs.

State your case

If you're recently unemployed and have a good chance of finding a similar job, be sure to explain your situation to the insurer. They may be more likely to approve your application and consider your previous income level when determining your eligibility.

Reveal your assets

If you own a house or have other assets, be sure to disclose this information. This demonstrates financial responsibility and stability, which can help your case for insurance approval.

What are the alternatives if insurance is denied?

If you are unemployed and your application for life insurance is denied, there are several alternatives you can consider:

Reduce your coverage requirement

This is one of the most effective steps to increase your chances of getting a life insurance policy. If you are currently unemployed, you can opt for a policy that offers reduced coverage. This option may be more affordable and increase your chances of approval.

Seek more cost-effective insurance

If budget is a concern, term life insurance is usually a more affordable option than permanent life insurance. It covers you for a fixed duration, typically between 10 to 40 years, and is generally easier to obtain approval for.

Provide justification for your situation

Before initiating the application process, prepare a letter explaining your circumstances and provide a copy of your CV. If you have recently lost your job but have strong prospects of finding similar employment, your insurer may be more inclined to approve your application.

Demonstrate financial stability

If you can show financial stability and strength, insurers may view your application more favourably. This can include providing evidence of savings and/or investment accounts, a good credit score, and little to no debt.

Apply for a lower amount

Applying for a lower coverage amount may increase your chances of approval. The higher the coverage, the higher the premiums, and insurers may be concerned about your ability to keep up with payments if you are unemployed.

Shop around and work with experienced advisors

Different insurance companies have varying criteria for approval. Working with experienced advisors or agents can help you find the right insurer for your situation and increase your chances of approval.

Consider riders or add-ons to your policy

Although not recommended due to their cost and difficulty in making claims, certain riders or add-ons can provide financial protection if you lose your income. For example, a disability income rider pays out a monthly stipend if you become disabled and unable to work, while a waiver of premium rider waives your premiums in such a situation.

While being unemployed can make obtaining life insurance more challenging, these alternatives can help increase your chances of securing the protection you need.

Frequently asked questions