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How to get life insurance if you’re unemployed

You can buy a policy when you’re out of work — but expect your insurer to look into why.

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Losing your job brings with it a lot of uncertainty, but it won’t affect your life insurance application in most cases. Your insurer will want to justify your need for coverage, so prepare to tell them why you’re unemployed, how much you earned in previous roles and how your job search is going.

Can I get life insurance if I’m unemployed?

Yes, but it may be a more complicated process. Your insurer will look at two main factors to determine your eligibility for coverage:

  • Why you’re unemployed. There are many reasons for unemployment, and your insurer will consider your control over the situation. For example, if you were made redundant by a struggling company or had to leave the workforce to care for your family, your insurer will take that into account.
  • How long you’ve been unemployed. If you apply for life insurance soon after becoming unemployed, you may be able to buy a policy that aligns with your previous income. But if you’ve been unemployed for a while and aren’t actively job seeking, you might struggle to get the coverage you want. Life insurance is primarily designed to replace your income when you die, so you’ll have a harder time justifying why you need coverage without a current income.

How insurers treat different types of unemployment

From an insurer’s perspective, it’s important that you can pay for your policy. After all, life insurance is a contract — you pay premiums to maintain your coverage, and your insurer pays a death benefit to your loved ones when you die.

Insurers treat unemployed applicants on a case-by-case basis. Here’s what you can expect when you’re shopping for a policy.

Reason for unemploymentWhat to expect
You were furloughed or laid offUnemployment levels are soaring due to the COVID-19 outbreak, and insurers are sympathetic to that. They know many people lost their jobs unexpectedly, and they also understand that your employment status could change once the pandemic has passed or you find a new job. You may be asked to submit supporting documents, such as pay stubs.

To decide whether to offer you policy, your insurer will assess:

  • Your previous occupation
  • Your previous income
  • Assets you own
  • Whether you’re actively seeking employment
You’re a stay-at-home parent or nonworking spouseWhile nonworking spouses don’t bring in an income, they typically perform a lot of unpaid labor — such as cooking, cleaning, driving the kids around and assisting with homework.

In this case, your insurer will look at your partner’s income and how much life insurance they have to determine how much life insurance you qualify for.

Some insurers are more generous than others when it comes to issuing policies to unemployed spouses.

For example, Prudential, Mutual of Omaha and Lincoln Financial will match 100% of the working spouse’s coverage up to specific limits, while Transamerica will match 50%.

You’re unable to work due to a disabilityIf you can’t work due to a disability, you may not qualify for a traditional life insurance policy. There are two reasons for this: Disabilities are classified as pre-existing conditions, and your insurer can’t use your current or projected income to underwrite a policy.

However, you can apply for a guaranteed issue policy, which is open to all applicants — no questions asked. Note that premiums are expensive.

To protect yourself financially while you’re alive, disability insurance can help, but this plan must be in force before experiencing a disability.

You’re a college or graduate studentIf you’re unemployed because you’re studying full time, your insurer will look at your projected income. Depending on your age, they may also offer coverage based on a parent’s or spouse’s life insurance policy.

Will I need to prove my income when I apply for life insurance?

Yes. In the application process, your insurer will ask about your employment status and income to confirm you can cover your life insurance premiums. Underwriters will also assess whether the amount of coverage you’ve requested is reasonable based on your income and earning potential.

As an unemployed applicant, you may be asked additional questions, such as how much life insurance your partner has or when you expect to return to work.

The COVID-19 pandemic has led some insurers to loosen restrictions for temporarily unemployed applicants. For example, Haven Life is accepting newly unemployed applicants — even if their partners don’t have life insurance.

Unemployment riders on life insurance policies

If you want to prepare for the possibility of becoming unemployed, you can add a waiver of premium rider to your life insurance policy for a fee.

This rider pauses your premiums for a set period of time if you become unemployed or fully disabled and can’t work.

  • To qualify for an unemployment waiver of premium, you must notify your insurer as soon as you become unemployed — and before you miss a payment. You’ll also need to prove you’re actively looking for a new job or receiving unemployment benefits.
  • A disability waiver of premium kicks in after you’re continuously disabled for a specified time period, usually three to six months. You’ll need to meet your insurer’s definition of disability and be under a specified age, usually 60 or 65.

What’s the best type of life insurance policy for people who are out of work?

Because your income is uncertain, a term life insurance policy is your best bet. It’s the cheapest option, and it provides coverage for a set period of time — like 10, 15 or 20 years.

Some companies offer convertible term life policies, which means you can upgrade to a permanent policy when you’re in a better financial position. Permanent policies cost six to 10 times more than term life insurance, but they become a cash asset over time and cover you the rest of your life if you keep paying your premiums.

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How much life insurance should I buy?

Typically, the rule of thumb is to buy five to ten times your annual income in life insurance coverage. But if you’re not working at the moment, or your circumstances have shifted and you’re underemployed, aim to only buy the coverage you can afford.

To do this, compare the average monthly premium from a range of insurers against your budget, and narrow down your options based on those findings.You can always purchase more coverage later when you’re in a better financial position. This strategy is known as “laddering,” and it involves layering multiple life insurance policies to suit your needs at that stage of your life.

How to lower your life insurance premiums

There are a few ways to cut down your premium and make your life insurance policy more affordable:

  • Pick a shorter term or lower coverage amount. Some life insurance is better than none, especially if you have financial dependents. You can always supplement your coverage by purchasing another policy later on.
  • Manage any medical conditions. Proving to your insurer that you’re following your treatment plan and taking prescribed medications may lower your rates.
  • Stop smoking. Smokers typically pay two to three times more for coverage, and insurers test your nicotine levels as part of the medical exam. If you apply after quitting smoking for at least a year, you may be able to access nonsmoker rates.
  • Pay your premiums annually. If you can afford to pay your premiums annually — rather than monthly, quarterly or semiannually — you could save 2% to 8% on your premium.
  • Shop around. Rates vary significantly between insurers, so it’s worth getting quotes from a range of companies to secure the best policy at the lowest price.

What happens if I can’t pay my premiums?

Insurers are legally required to give you a grace period to make up a missed payment. It typically lasts 30 or 31 days, and your policy stays in force during that time.

If you still can’t pay your premiums, ask your insurer about premium relief programs. Depending on the state you live in, your insurer may extend your grace period or waive your premiums for a set period of time.

Another option is to reduce your coverage. Most insurers will allow you to adjust your coverage at least once, usually after you’ve had the policy for three years. By decreasing your coverage, you’ll get a cheaper premium — which may help you to hold onto your policy while you’re unemployed.

What are my options if my policy lapses?

If you aren’t able to pay your premiums within the grace period and your policy lapses, you can request to have your policy reinstated. Your insurer may reactivate your policy, provided you pay your premiums within 30 days of the lapse.

Life insurance premiums during the coronavirus

Bottom line

You can still buy life insurance if you’re unemployed, and the amount you can get will come down to your previous or projected income as well as your spouse’s coverage. The key is to apply sooner rather than later, as insurers look at recently unemployed applicants more favorably.

To keep your premiums low, compare life insurance companies and only buy the coverage you need.

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