Life doesn’t always go to plan, so we do our best to make adequate preparations. Sometimes we have forewarning, like when a big storm is one the way. Generally, you’ll hear about it with time to stock up on bottled water, groceries, and a first aid kit. The dire predictions create an incentive to act – even if the storm doesn’t arrive with the forecasted severity.
But sometimes, we only find out about the risks when it’s too late to prepare. When it comes to planning for your own death, life insurance is the main way we can hedge our bets. But when you find out you have a terminal illness, and you don’t have life insurance coverage, what do you do?
Can you get life insurance with a terminal illness?
Yes, you can get life insurance with a terminal illness – but your coverage options will be limited. Guaranteed life insurance policies will cover you, no questions asked, but there are some downsides. Compared to other policies, guaranteed policy premiums are higher, have lower coverage, and include a two year waiting period before you can make a claim. Unfortunately, this no-claim period makes it less useful for terminal illnesses with a short expected lifespan.
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Why is life insurance more expensive with poor health?
Life insurance is more expensive for people with poor health because the policy is more likely to pay out. Life insurance companies offset the risk of insuring people of with poor health by offering cheaper policies to young and healthy people. Unlike mandatory car insurance, people tend to put off buying life insurance, which means some families have a lot of trouble when a loved one passes away unexpectedly. As such, any incentive for people to buy life insurance earlier in life is a good thing.
People with a terminal illness are guaranteed to pass away within a set amount of time, so life insurance companies generaly won’t offer a normal policy to them. Instead, guaranteed life insurance policies are available. Because guaranteed policies are only bought by people too sick to purchase normal policies, they are much riskier for the insurer, so are generally more restrictive.
Important: Guaranteed life insurance is not unaffordable. While premiums are more expensive than comparable term coverage that requires a medical, the policies aren’t unreasonably expensive. They do, however, have several restrictions that make it harder for some people to claim. This might seem cold, but it does significantly decrease the price of premums.
What is guaranteed life insurance?
Guaranteed life insurance is a specific type of permanent life insurance. It’s similar to a term-to-100 policy that doesn’t require any medical information. It’s generally only available if you’re younger than 74, 75, or 80 years old, depending on the life insurance company.
Waiting periods for guaranteed life insurance
Guaranteed life insurance policies have a two year waiting period, or no-claim period, where the death benefit will not be paid out if you die. If you die within this two year period, your premiums will be refunded, minus administration fees, to your beneficiary.
Unfortunately, this means guaranteed life insurance will not help people with a terminal illness with a very short expected lifespan. However, by not paying out to the riskiest cases, life insurance companies can offer guaranteed life insurance for much lower premiums.
Coverage limits for guaranteed life insurance
Guaranteed life insurance from most insurers will only cover you for up to $25,000. This is enough to cover your basic funeral expenses – guaranteed life insurance is often referred to as feneral life insurance for this reason.
This isn’t enough to cover the average Canadian household debt, replace lost income from a primary earner, or cover the tax liability for even a moderate sized estate. As such, it’s highly recommended that if you expect any of these costs on death, you should already have a suitable life insurance policy in place – scroll down to our section on being proactive for more on that.
Accelerated death benefits
Assuming your no-claim period has passed, having a terminal illness with less than two years to live will often entitle you to an accelerated death benefit, or a living benefit. The details differ between life insurance companies, but you’ll generally be able to access 50% of your death benefit before you die, tax free. You’ll still need to pay your premiums, and your death benefit will be reduced by the amount you are paid out.
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How much is guaranteed life insurance?
The following table lists some indicative quotes for Sun Life Go Guaranteed Life Insurance, for a male, non-smoking Ontarian. Products from other companies are similarly priced. Premiums are generally 15-20% cheaper for women, and 150-200% more expensive for smokers.
All premiums are monthly, and stated in Canadian dollars.
Post-recovery life insurance
If you’ve recovered from a serious condition like a stroke, it’s likely you’ll be thinking about life insurance. Unfortunately, having a history of a serious condition can affect your insurability, as life insurance coverage will consider it a risk factor.
Before you apply, find out if you’re insurable and what surcharges may apply. Since companies differ in their criteria, contacting multiple insurers will give you more options. An advisor can ask on your behalf and maintain your anonymity – this is a good idea, as it will prevent you from being denied coverage, which can affect future applications.
The bottom line – be proactive about life insurance
We don’t want to sound like your parents, but you should be taking life insurance seriously before you’re in dire need of it (aka before you develop a terminal illness or die). Life insurance premiums are generally very affordable when you’re young and/or healthy, whether it’s term life insurance or whole life insurance.
Buying life insurance when you’re young, well before you actually need it, also gives you access to a wider range of products, with shorter waiting periods, investment components, and the options of additional coverage for your spouse, kids, and for sickness and critical illness. You’ll also have the ability pay for more than just your funeral, including paying down your debts, paying off the tax liability of your estate, as well as providing for your family in the form of income replacement. Learn more about that in our article ‘How much life insurance do I need?‘.