Life Insurance And Hospice: What's The Deal?

While it is possible to get life insurance when on hospice, options are limited. A person on hospice is considered high risk by most insurance companies, and as such, they will be deemed uninsurable. However, there are still some life insurance options available, such as guaranteed issue life insurance, funeral expense life insurance, and final expense life insurance. These policies often have high premiums and limited death benefits, but they can help cover end-of-life costs and expenses.

Guaranteed issue life insurance

However, there is a catch. Guaranteed issue life insurance tends to be more expensive than traditional term or whole life policies because it is considered riskier for the insurer. There is also a waiting period of around two to three years before the benefits take effect. If the policyholder passes away within this waiting period due to a non-accidental cause, the beneficiary will not receive the death benefit but will be refunded the paid premiums with interest.

Who Is It Good For?

Example Providers

Several insurance companies offer guaranteed issue life insurance, including:

• Mutual of Omaha
• AAA Life Insurance
• AARP
• AIG Direct
• Alfa Insurance
• Colonial Penn
• Fidelity Life
• Gerber Life Insurance
• Vantis Life

Group life insurance

While most insurance companies consider a person with a terminal illness uninsurable, it is still possible to secure life insurance if you are on hospice. Your options, however, will be limited to guaranteed issue life insurance or any group life insurance offered through your employer.

• You cannot be declined coverage.
• If you have health complications, you may get a better rate than if you apply as an individual.
• Your employer usually pays all or most of the premium.
• You have to accept whatever insurance provider is offered by the employer or organization.
• The amount of coverage you get is often less than what you need.
• You usually cannot keep the coverage when you change jobs.

The biggest appeal of group life insurance for employees is its value for money. Group members typically pay very little, if anything at all. Any premiums are drawn directly from their weekly or monthly gross earnings. Qualifying for group policies is easy, with coverage guaranteed to all group members.

However, the low cost and convenience of group life insurance come with some trade-offs. The coverage provided is usually basic and may not fulfill the needs of policyholders. Typical coverage amounts are $20,000, $50,000, or one or two times the insured's annual salary. Therefore, it is recommended that group life insurance be treated as a perk and supplemented with a separate individual policy rather than being relied upon as sufficient standalone coverage.

Another drawback is that the employer controls the policy, which means your premiums can increase based on decisions made by your employer. If an organization opts to terminate group life insurance or an individual decides to switch jobs, coverage usually stops. However, former employees have the option to continue coverage at the individual level, although this comes with higher premiums.

Some organizations allow group members to purchase more coverage than the basic life insurance offered. This extra voluntary coverage may make financial sense because even the added premium will still be based on the less expensive group rate. This additional coverage may also be portable between jobs, which is not the case with basic group policy.

Accelerated death benefit rider

An accelerated death benefit rider is a life insurance policy add-on that allows you to access your policy's death benefit before you die. This is particularly useful if you are diagnosed with a terminal illness or another serious illness. The money you receive via the rider will be deducted from your death benefit.

The accelerated death benefit rider is a relatively new product, and older policies may not include one. If your existing policy doesn't include an accelerated death benefit rider, you can ask your insurer if it can be added. Note that adding the rider may increase your premium. Some insurers may charge a withdrawal fee.

If you already have an active life insurance policy, you can exercise this feature, which many companies include at no additional cost. You have to already be approved for either a term life or permanent life insurance policy to add the rider. You can't increase or add the rider after you have been diagnosed with a terminal illness.

Once your accelerated death benefit rider has been activated, you might be permitted to use anywhere from 25% to 100% of your death benefit while you're still alive, depending on your insurer and policy. You can typically use the payout for anything you want, from medical bills to travel expenses, but tax implications may vary depending on your circumstances. Any portion you don't withdraw will be paid out to your beneficiaries once you pass away, but premiums are still required to be paid for the benefits to be paid upon the insured's death.

Final expense insurance

The cash benefit from final expense insurance can also help cover out-of-pocket medical bills that may not be covered by Medicare or private insurance. Additionally, it can assist with legal and accounting costs associated with probate, which can be a significant expense for families.

Graded death benefit life insurance

Graded death benefit policies have four basic features:

• The full benefit is not paid out until after a two to three-year waiting period.
• If death occurs during the first two years, beneficiaries will receive a benefit, but not the full amount.
• The payment during the waiting period is either graded or a return of premium plus interest.
• Rates are higher than for standard life insurance.

Who is Graded Death Benefit Life Insurance For?

If the insured dies within the waiting period, the beneficiaries will receive a portion of the policy's full death benefit, and that portion increases over time. For example, if the insured dies within the first year of coverage, their beneficiaries might receive 10% of the policy benefit, with the percentage increasing in the second year. Most graded death benefits time out after two or three years, after which the beneficiaries are eligible to receive the full benefit.

Frequently asked questions