Life insurance is a financial tool to provide for loved ones when you pass away. The death benefit can cover funeral expenses, pay off debt like a mortgage, and provide for living costs of beneficiaries. However, JRC Insurance Group notes that you can be declined for life insurance due to reasons like age, chronic illness, diabetes, a hazardous career, a history of cancer, or even low income.
If you’ve been rejected for life insurance or are simply interested in some alternative options that may be a better fit for your needs, here are some options to consider.
1. Income protection insurance
Income protection insurance provides monthly, tax-free income if you are unable to work for a prolonged due to an illness or injury. It’s available in terms of 12-60 months, and pays between 50%-70% of your earnings. Upon submitting a claim, there’s a deferral period between 4-26 weeks that you’ll need to wait before you start receiving payments.
While most people associate life with the death benefit, some people may be utilizing riders to provide income protection while they’re working. Income protection insurance can address those needs if you are unable to qualify or renew life insurance.
2. Guaranteed coverage plan
A guaranteed coverage plan is a form of insurance that does not require a medical exam or records. You’ll generally be eligible for coverage unless you exceed the age limit set by the insurer, which is typically between 50-80 years old. It’s a great alternative to standard life insurance if you’ve otherwise been denied because of medical factors. However, it can have high premiums and the death benefit is usually capped around $25,000 which means it offers limited protection. The primary purpose of guaranteed coverage is usually to cover final expenses like a funeral and burial or cremation.
3. Critical illness insurance
Critical illness insurance provides a tax-free lump-sum if you ever develop a life-threatening illness. Like income protection insurance, its primary purpose is to replace income rather than provide a death benefit. Unlike income protection insurance, some policies do not have a waiting period which allows you to immediately use the money to pay for treatment or cover living costs while you recover from the illness. Coverage amounts vary, but are typically between $5,000 to $75,000 depending on the premiums you’re willing to pay. Low premium policies will have a lesser benefit and cover a limited list of illnesses, while more expensive plans increase your benefit and have a more extensive list of illnesses that are covered.
4. Accidental death and dismemberment (AD&D) insurance
Accidental death and dismemberment (AD&D) insurance covers fatal accidents or the accidental loss of a limb. This type of insurance does not consider your medical history or lifestyle choices, which may allow you to get coverage even if you’d otherwise be disqualified for life insurance. In the event of a fatal accident or the loss of a limb, you’ll receive a tax-free lump-sum payment. Your payout will depend on the situation. For example, the loss of one limb might result in a payout for 50% of your coverage amount, while the loss of two or more may pay the full 100%. The premiums for AD&D insurance can be extremely cheap, around $7 to $10 a month per $100,000 of coverage. It can be a great alternative to life insurance if you work in a hazardous occupation and don’t qualify, or if you want a cheaper form of coverage.
5. Mortgage protection insurance
Mortgage protection insurance pays off the remaining balance of your mortgage if you pass away or are unable to work because of a disability. The payout covers both your mortgage principle and interest, but it goes directly to your mortgage lender and there will be nothing left for loved ones. This means expenses like property taxes, homeowners insurance, and HOA dues will still need to be paid. However, you may be able to get a rider on your policy to help cover these costs. Premiums for mortgage protection insurance can range from $5 to $100 per month and depend on your age, the number of years left on your mortgage, and the current balance of your mortgage. Considering mortgages account for 70% of American consumer debt, this option can provide financial security by ensuring your home isn’t loss in the case of your death.
6. Pre-paid funeral plan
A pre-paid funeral plan covers most or all of the expenses associated with a funeral so that beneficiaries aren’t tasked with finding a way to cover these costs. The median cost of a funeral is $8,300 and is often paid for using life insurance, but a pre-paid funeral plan can serve the same purpose. Pre-paid funeral plans typically range from $10,000 to $25,000 and you can choose to pay for it up front or in monthly installments. This option can help you alleviate stress for loved ones during the grieving process, and may be a good alternative to life insurance for covering final expenses.
7. Asset-based long-term care insurance
Asset-based long-term care insurance is a hybrid form of insurance that combines long-term care coverage with an investment component. The investment component generally involves investing premiums into a fixed or variable annuity, which builds cash value over time. That cash value can be utilized to pay for long-term care services like an assisted living facility or nursing home, and any remaining proceeds can be passed onto beneficiaries like a death benefit. These policies are highly customizable and let policyholders choose the amount of long-term care coverage they want, the coverage term, and the type of investment component.
8. Employer-issued insurance
Employer-issues insurance is sometimes offered as an optional benefit for employees within a company. Some employers will provide a minimum amount of coverage at no cost to the employee, but can be increased if desired. If you’ve been rejected for coverage on your own but are currently working, it’s worth checking if you’re eligible for employer-issued insurance. If you’re not working but are desperate for insurance, you may even consider getting a job just for the insurance benefits. Just make sure to ask about the qualifications for getting insurance benefits. Some employers may restrict benefits to full-time employees or based on your tenure, location, or position.
