Do you have a dangerous job and need life insurance? Most types of life insurance ask at least one underwriting question about your occupation. You can either do things the hard way, finding a company willing to accept your particular occupation, or you can simply go with a type of policy that doesn’t ask occupation questions. Is it fair if the insurance company doesn’t ask about a risky job and you have one? Yes, the insurance companies are very much aware of the risk factors out there. If they don’t ask a question, it’s because they don’t care about that risk or they already beefed up their premium to account for a certain percentage of people with dangerous jobs. As far as I know, all term life policies want to know what job you have (guaranteed issue term life is probably the one exception). Whole life policies also ask about occupation, except for simplified issue whole life and guaranteed issue whole life. Guaranteed issue products are not the best option because that product is designed for the most extreme risk, such as someone who was just diagnosed with cancer or terminal illness. You’ll end up with coverage limitations (2 year waiting period) and higher premiums if you go with guaranteed issue. Therefore, the best thing to use for dangerous jobs is a simplified issue whole life policy. With simplified-issue, there are no occupation questions, but there are questions to eliminate high risk medical problems. This allows you to have a policy with lower premiums and no coverage limitations.
This article disputes what other authors say are the best whole life insurance companies. Learn why their list of best companies is flawed.
I have to admit I’m jealous of other websites that are given clout and authority by search engines despite their terrible advice. These websites don’t deserve the clout and authority given to them. One whole life insurance article touted New York Life and State Farm as two of the best life insurance companies. I will dispute this assertion.
New York Life has a particular life insurance product that is sold to seniors. This product is ridiculed by hundreds if not thousands of independent agents. Here is what makes it so bad: premiums increase every five years and the policy automatically cancels at age 80. So even if seniors on a fixed income can somehow afford the premium increases, the policy cancels just a year after their life expectancy. Yes, the policy is convertible to a permanent policy, but I suspect the vast majority of policyowners don’t attempt conversion until age 79, when they are greeted with an unpleasantly high conversion quote. What might not be explained well is the way conversion rates are calculated; they are based on the age of the insured at the time of conversion. Nearly everyone trying to get a permanent policy in their late 70’s or early 80’s will have to pick their jaw off the floor after reading the quotes. Seniors are much better off buying simplified issue whole life, where the premiums never change and the policy never cancels (as long as premiums are paid).
State Farm has many good things going for them, but competitive life insurance rates is not one of them. State Farm is well known for having some of the highest life insurance rates on the market. State Farm does have an impressive reputation for never missing a dividend payment, but I suspect that can be attributed to overpriced premiums. If companies charge too much in premiums, they will always have enough money to pay dividends. Non-participating policies (no dividend payments) seem to be the norm for companies with competitive premiums.
I recently ran across a blog article from a certified financial planner. In the article he described a situation where a 28 year old man with $5,000 in credit card debt and no heirs was sold a $200,000 whole life policy. The financial planner mentions term life as the best solution in this situation. However, his analysis relies on too many assumptions, including an assumption that disability will not occur. According to the US Centers for Disease Control and Prevention (CDC), 1 in 4 adult Americans will suffer from disability. The financial planner picked the cheapest term policy he could find when doing his analysis. The cheapest term policies typically don’t include living benefits. A living benefit provides an income stream to insureds if they become disabled. Cheap term policies may also lack valuable riders like the waiver of premium for disability rider, where the insurance company pays premiums for a disabled insured. People who become disabled are often unable to pay premiums, so living benefits are critically important. Don’t automatically go with the cheapest option.
I will agree with the financial planner that whole life wasn’t the best solution, but term life wasn’t either. A better solution would have been indexed universal life. With this type of policy, the insured could have paid the minimum premiums for a short time while he was paying down credit card debt. After the credit card debt is paid off, the insured can increase his premium payments (universal life offers flexible payments).
Another problem I have with the analysis is the assumption that sufficient funds will be available after a term policy expires, therefore a new life insurance policy won’t be needed. Even with careful financial planning, there’s still a chance of not having enough money. At the very least, people should fund their final expenses with a permanent life insurance policy. I’m not talking about a large policy; just something large enough to cover end of life expenses. If you don’t like the idea of paying premiums for the rest of your life, there is a special type of policy called limited pay whole life that allows you to pay off a policy in 10 years. After 10 years there are no more payments to make, and the policy stays in force forever.
Life insurance ads often take a one-size-fits-all approach, emphasizing the use of one type of life insurance over any other. Since certain age groups typically only see ads for one type of life insurance, those products become more popular within their respective age groups. For instance, people under 50 will never see ads for whole life unless they see an ad intended for an older age group.
Life insurance solutions are often more complicated than the one-size-fits-all strategy shown in advertisements. I use a two policy approach for people under 50. For final expenses I recommend whole life, and for all other expenses I recommend term life (affluent consumers should look at universal life). The problem with term life is that it terminates at a designated point in time, and some expenses, such as the cost of a burial or cremation, never go away during a person’s lifetime. Therefore, it’s inappropriate to use term life for everything.
Here is the takeaway: popular is not always better. Insurance products are only popular because ads make them that way, and ads make them that way because they only have enough time to discuss one product. Insurance agents, on the other hand, have plenty of time to discuss multiple products, and how those products compliment each other.
Any reputable agent selling whole life insurance will avoid modified plans unless there is no other option. Every client dreads the bad news that only modified whole life can be offered (agents don’t enjoy giving the bad news either). To soften the blow, I’ve constructed a list of medical conditions that typically trigger an offer for modified whole life. I want to caution that every insurance company is slightly different in the medical conditions they accept, so don’t think of this list as exhaustive. Also, as a general rule, the companies with the best pricing tend to have more restrictive underwriting.
- organ transplant
- terminal illness
- congestive heart failure
- cognitive impairments such as dementia
- heart problems within the last year
- supplemental oxygen (some companies will accept this for sleep apnea)
- recent drug or alcohol abuse
- recent cancer
- assistance with daily living activities (eating, bathing, etc.)
- current dialysis
If you do get an offer for modified whole life, it isn’t totally bad. You will have full coverage after a two or three year waiting period. In the unfortunate event you pass away during the waiting period, the premiums you paid weren’t wasted because all of that money comes back to your beneficiary plus interest, and the interest is better than anything you would get at a bank. Be sure to contact us with any questions.