Life Insurance: Sickness Coverage And Benefits Explained

Life insurance is a financial safety net that provides peace of mind and protection for your loved ones in the event of your death. It covers deaths from natural causes, illnesses, and accidents, but there are some circumstances in which the insurance company may deny paying out the death benefit. For instance, if you engage in risky behaviours, lie on your application, or fail to pay your premiums. While life insurance typically covers death due to illness, it's important to understand the specific conditions and exclusions of your policy. Some policies may have exclusions for pre-existing conditions or impose a waiting period before coverage begins. Additionally, critical illness insurance and income protection insurance are separate types of coverage that provide financial support during your lifetime if you are unable to work due to illness or injury.

Life insurance and terminal illness

Terminal illness benefit is a feature of some life insurance policies. It pays out the sum insured (the amount of cover provided by the policy) when a policyholder is diagnosed with a terminal illness. This benefit is included with or added to 'term' life insurance, where the policy lasts for a stated number of years.

A terminal illness is defined as a condition in which a physician certifies that a patient has a terminal condition with an expected lifespan of six months or less. Examples of illnesses that sometimes qualify as terminal include Parkinson's disease, advanced cancers, and dementia.

If you have been diagnosed with a terminal illness, the only type of life insurance you can buy is a guaranteed issue life insurance policy. This is because life insurance carriers are in the business of risk assessment, and a terminal illness represents a high level of risk. Guaranteed issue policies are simple and straightforward and can be a godsend if you are unable to qualify for other forms of life insurance. However, they are modest in size, with most capping at $25,000, and they come with high premiums due to the increased risk.

If you already have life insurance and are then diagnosed with a terminal illness, you may be able to utilise the accelerated death benefit rider to access funds while you are still alive. This can help cover expenses related to your illness, such as hospice or nursing home care.

It is important to note that terminal illness benefit is different from critical illness cover. Critical illness cover pays out a lump sum if you are diagnosed with an illness or condition covered by your policy, but it does not cover terminal illnesses. It is also different from income protection, which pays a monthly amount if you are unable to work due to illness or injury.

Life insurance and pre-existing conditions

Life insurance is a contract between you, the policyholder, and a life insurance company. While having a pre-existing medical condition does not automatically disqualify you from buying life insurance, it may result in less choice and higher costs. Pre-existing conditions can make it more difficult and expensive to get life insurance, but even if you have a chronic or terminal health problem, you can likely find a policy you qualify for if you shop around.

A pre-existing condition is a medical issue you were diagnosed with or treated for before applying for life insurance. Each insurer has its own underwriting process, which is how they assess applicants' risk profiles. Some insurers are more flexible about certain health conditions than others. In general, you’ll raise a red flag if you have one or more of the following pre-existing conditions: high blood pressure, diabetes, cancer, and asthma.

Insurers typically group applicants into rate classes based on their health, such as standard, preferred, or super preferred. The name given to each class can vary among insurers, but the goal is the same: to categorize the risk of insuring you based on your life expectancy. Most people qualify for preferred or standard rates, but if you have a serious health condition, you may qualify only for substandard rates. Why? Depending on the situation, a pre-existing health condition might cause an early or unexpected death, which increases the risk for the insurer. As a result, the cost of the policy is higher. If the risk is too high, the insurer may deny coverage altogether.

• Stick to your treatment plan: Demonstrating adherence to your treatment plan shows the insurer you’re managing your condition and helps you stay healthy. Show insurers proof that you visit your health provider regularly, take any prescribed medication, and follow any other medical advice or instructions your health provider has given you.
• Get regular exercise: Regular exercise keeps you healthy overall. It offers numerous general health benefits and can reduce the risks or symptoms of your pre-existing condition. Evidence of regular exercise can further convince an insurer that you’re managing your condition and maximizing your health.
• Lose weight: Depending on your condition, losing weight can increase your chances of approval for a life insurance policy. This is because getting to a healthy weight can lead to a range of positive health effects, such as reduced blood pressure, better blood sugar, and a lower chance of developing other conditions. However, this is only true if you are considered overweight. Being underweight can also lead to health risks that may lead to issues with approval.
• Shop around for insurance: Insurance coverage costs and terms for the same coverage can vary between insurers. Shopping around can help you find insurers willing to offer coverage to you despite a pre-existing condition. It can also help you compare quotes and choose the insurer offering the best rates and terms.

Life insurance and mental health conditions

According to a 2021 study by the National Institute of Mental Health, over one in five adults in the United States has a mental illness. Mental health conditions are common, and people with these issues can benefit from insurance coverage. Most insurers are aware of this and typically welcome those with mental health issues, especially after a medical exam and a questionnaire about their medical history. While having a mental health condition does not disqualify someone from buying life insurance, it may result in higher costs and more limited options.

Insurers have their own definitions of what constitutes a mental health issue. However, common mental health issues that are considered by insurers include ADHD (Attention Deficit Hyperactivity Disorder), borderline personality disorder, dissociative disorders, OCD (obsessive-compulsive disorder), PTSD (post-traumatic stress disorder), and schizoaffective disorder.

Factors affecting insurance coverage for mental health conditions

When considering insurance coverage for mental health conditions, insurers will look at how the condition affects daily life and the ability to work. They will also assess the severity of the condition and whether it is being successfully treated. The more independent someone is, and the better their treatment prognosis, the more likely they are to get coverage.

Tips for buying life insurance with a mental health condition

• Be mindful of when you apply. An insurer is more likely to approve your application if your medical records show that your treatment has been effective.
• Take advantage of improvements in your health. If you are accepted but charged a high rate, you can request a re-evaluation of your policy (and a lower premium) once your condition is under control and your prognosis is positive.
• Find the right agent. Look for an independent life insurance agent who works with an impaired risk specialist. This specialist will know which insurance companies are more likely to offer favourable rates for your specific condition.
• Get quotes from multiple insurers. Different insurance companies can vary significantly in how they review specific health conditions, so it is important to compare quotes to find the best coverage and price for your needs.

Best life insurance companies for mental health conditions

While every life insurance company evaluates mental health conditions differently, some insurers are more accommodating than others. Here are some of the best options:

• Prudential: Offers competitive coverage options for people with common mental health conditions, such as depression.
• Legal & General America: Offers affordable rates for people with depression and anxiety, even if they are taking medication.
• Brighthouse Financial: Provides instant decision applications, affordable rates, and comprehensive coverage for people with ADHD.

Life insurance and chronic illness

Life insurance provides financial protection for your loved ones in the event of your death. It is a contract between you (the policyholder) and an insurance company. You make regular premium payments, and the company provides your beneficiaries with a death benefit when you pass away.

Chronic Illness and Life Insurance Coverage

Chronic illnesses can impact your ability to obtain life insurance, but it is not impossible. The manageability and type of illness are important factors that insurance companies consider when determining your rate class and monthly payment.

Manageability of Chronic Illness

If your chronic illness is manageable and well-controlled, you may be able to obtain standard coverage options. For example, conditions like Lupus, which can be managed through treatment, may not prevent you from getting a life insurance policy.

Type of Chronic Illness

The type of chronic illness, whether physical or mental, also plays a role in determining coverage. Mental illnesses that are easier to manage may result in a standard or standard plus rate class, while more severe mental health issues could lead to higher monthly payments.

Physical chronic conditions often result in less leeway when it comes to rate classes, and you may be placed in the substandard class, with payments based on the severity of your illness.

Guaranteed Acceptance Policies

For aggressive or difficult-to-manage illnesses, such as HIV or MS, a guaranteed acceptance policy could be an option. These policies do not require a medical exam or questions about your health, but they often come with higher costs and lower coverage amounts.

Group Life Insurance

If you have group life insurance through your employer, maintaining coverage while dealing with a chronic illness can be a concern. Most group policies will continue coverage while you are disabled, but you may need to apply for a life insurance waiver of premium to avoid paying premiums during this time.

Tips for Buying Life Insurance with a Chronic Illness

• Be mindful of when you apply. Wait until your condition is under control and your prognosis is positive.
• Find the right agent. Look for an independent agent who works with an impaired risk specialist, as they will know which insurance companies are more favourable for your specific condition.
• Get quotes from multiple insurers and compare coverage and prices.

Final Thoughts

While chronic illnesses can complicate the process of obtaining life insurance, it is still possible to find coverage that suits your needs. It is important to be transparent about your health and proactive in maintaining coverage, especially if your ability to work is impacted by your illness.

Life insurance and critical illness

Life insurance is a contract between you, the policyholder, and a life insurance company. You make regular premium payments and follow the terms within the plan, and the company provides your beneficiaries with a death benefit or payout when you pass away. While term life insurance applies for a certain time period, permanent life insurance offers indefinite coverage and a cash value component.

Life insurance covers death due to natural causes, illness, and accidents. However, life insurance policies do not pay out in every situation. For instance, if you lie on your application, engage in risky behaviours, or fail to pay your premiums, the insurance company can deny paying out your death benefit.

Critical illness cover could provide a financial payout if you're diagnosed with a critical illness or condition covered by your policy. Conditions could include some forms of cancer, Alzheimer's/dementia, and heart disease. If you make a successful claim and receive a payout, this money could be used to pay for private treatment, make your home more accessible, or cover living expenses while you focus on your health.

Critical illness insurance could be particularly reassuring for those with significant and shared financial commitments. For example, if you're the primary earner and your loved ones would struggle financially if you were to fall ill and couldn't work.

In the case of combined life and critical illness policies, you can usually only claim once for either a critical illness or on the death of the policyholder. The policy is then cancelled. On the other hand, separate policies allow you to claim once for a critical illness and then again at the time of death on a life insurance policy, though they may be more expensive.

Life insurance waivers of premiums are often included in group life insurance policies, allowing life insurance to continue while an employee is disabled without requiring premium payments. However, eligibility for this benefit may end at a specified age, such as 65. Additionally, group life insurance usually offers portability and conversion options, enabling employees to continue their life insurance coverage after leaving their job.

Frequently asked questions