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Life Insurance for People with Physical or Mental Disorders

What is Life Insurance?

Life insurance is coverage that will pay your named beneficiaries, usually your family or loved ones, a benefit in the event of your death. The proceeds from the insurance can be used to pay final expenses, provide for the beneficiary's future expenses, or be spent in any way the person named as beneficiary elects.

Life insurance payments are known as premiums. The amount of the premium on a life insurance policy will be determined by several factors. The first factor is the type of life insurance you purchase. We will look at various types of life insurance later in this report. The next major consideration is a complex mathematical process performed by the insurance company to determine how likely it is that they will have to pay out money as a death benefit. In other words, they are gambling that they will not have to pay any benefits on many types of insurance. The factors that go into this decision are age, sex, health history, current medical condition, alcohol or tobacco use, and other factors that will be obtained from your insurance application, and from a medical physical examination, if required by the insurance provider.

Premiums are usually stated in "units". One unit of insurance is $1,000 of benefits to be paid to the named beneficiary upon a qualified death. If the "unit price" for a person happens to be $1.00 per unit per month and they wish to purchase $10,000 coverage, the monthly premium would be $10. Premiums for policies are not based on income. The only tie to your income is how much insurance you can afford to consider purchasing.

A qualified death has to meet the criteria stated in the insurance policies. Usually acts of war are not covered by any type of life insurance. Most insurance policies have what is called a suicide clause stating that benefits will not be paid for death caused by suicide, or will not pay for a death caused by suicide for a specific period of time. Often the suicide clause states that during the first two years of coverage, no payment of benefits will be paid in event of death by suicide. Other policies have five year suicide clauses; yet others will never pay in this situation.

Sometimes life insurance policies will pay "double indemnity" or double the benefit in the event of accidental death. Others will pay partial benefits in the event of accidental loss of a limb, eye, hearing in an ear and certain combinations of loss of body functions. You simply have to read the policy and have the insurance agent explain clearly and exactly what is and is not covered with any policy you consider.

The benefits from any payments made from a life insurance policy are paid to the named beneficiary on the policy. Often the named beneficiary is the spouse, child, or close relative of the person who carries the insurance. However, there are few if any rules regarding who can be the beneficiary. Multiple beneficiaries can be named on many policies. If desired, a person could name the executor of their estate as beneficiary for an amount to cover burial expenses and leave the balance of the benefits to a named beneficiary of a charity, foundation, friend, friend's child, or as trust for a scholarship for education. The options are endless as to who the beneficiary can be. Most often, however, you want to purchase insurance to protect your family's future against the loss of your income if you die.

Why Buy Life Insurance?

Life insurance can be a wise purchase for several reasons. The cost of a simple funeral has skyrocketed and a very basic funeral can cost $10,000! That's a lot of money for someone to have to pay to get a person buried. Even with cremation, the cost will be at least $3,000 or more, depending on memorial services held and other options selected. Of course, no one wants to leave their family with expenses to pay in addition to the loss of their loved one.

If you happen to be the only or the largest bread winner for your family, you must realize that your income will no longer be there to support your loved ones in the event of your death. How will they survive? Will they be able to afford a place to live? Will they even be able to afford to have a car? In a two income family, how badly will the quality of life be reduced if one income is gone? Will the children no longer be able to go to college? Will they even have decent medical care available or will your family be subsisting on a bare minimum. Dealing with serious financial issues in addition to the grief of losing a loved one can be too much for some to handle. This is the reason to provide for your family through life insurance.

What are the Common Types of Life Insurance?

The two major categories, or types, of life insurance are permanent life insurance and term life insurance. Both permanent and term life insurance can be purchased in amounts varying from a few thousand dollars to hundreds of thousands of dollars; one million dollar coverage can even be purchased if you are willing to pay the high premium. Let's look at each of these insurance types. We will also look at a less common third type of life insurance: guaranteed acceptance life insurance. If you want to find out all the various types of life insurance available, simply access www.metlife.com and navigate to their "Life Insurance 101" and you will find a wealth of information as well as links to other great sources of information.

Permanent Life Insurance

Permanent life insurance is an insurance policy that will cover your life and pay benefits upon your death to a named beneficiary. When purchasing this insurance initially, you can expect to have a physical examination and medical history report required, but during the life of the policy, you do not have to provide periodic medical reporting or physical examinations or tell the insurance company about any changes in your health condition. As long as the premium is paid and there is no change in the level (amount) of coverage, this type of insurance will not cancel your coverage because of declining health.

Permanent life insurance usually grows a cash value and withdrawals from this cash value can be made through loans, while still keeping the policy in effect. If you "cash in" the policy, which means to ask for all the cash value of the policy to be paid to you, the policy will no longer be in effect and to obtain insurance again you would have to go through all the necessary application procedures, including a new physical, medical history report and the possibility of being denied acceptance for coverage.

Within the arena of permanent life insurance are various types of permanent life insurance. These are universal life insurance, whole life insurance, and several other less common permanent life insurance products.

Permanent life insurance is usually purchased to protect a family's lifestyle should death of a key member occur. It can also be used as a rather safe investment method.

Term Life Insurance

Term life insurance is purchased for a specific term. It is the least expensive and least complicated insurance to cover one's life and provide payment to a beneficiary should you die during the insurance term. Normally, terms for this type of insurance are 1 year, 5 years, 10 years, and 20 years. Sometimes other term periods can be purchased. Some term insurance policies have a decreasing benefit based on age.

Term life insurance builds no cash value. It will pay a stated benefit should you die during the period of coverage. But if you live, you do not get any money back. A health examination and medical history is normally required and you may be denied coverage based on the results of the medical information.

It is possible to renew the term life insurance once the term expires, but the rates will be much, much higher if you do not submit to a new medical examination, and not all policies provide this option at all. Of course, if health issues have arisen since your last policy purchase, you can expect either extremely high rates or coverage denial.

Some term life policies can be converted into permanent life insurance policies. Of course you pay a lot more for the permanent life insurance premiums, but it does not require repeated medical reporting and permanent life insurance gains cash value. You can expect to be required to have a physical medical examination. It is required by almost all the insurance providers.

Term life insurance is often used when a group of business men wish to insure the partners' lives so that a buy-out of a member's interest can be accomplished should one partner pass away. The term chosen in this case would be the length of time until the partners each reach retirement age.

Guaranteed Acceptance Life Insurance

People who do not qualify for permanent or term life insurance due to medical problems can often obtain what is known as guaranteed acceptance life insurance. This type of insurance is also called "burial insurance" because the benefit amounts are normally small and will provide only enough benefits to pay for a funeral with little or no money left over. The premium on this type of insurance is relatively high for the benefit payout, but since acceptance is guaranteed and no physical is usually required, the insurance company is accepting a high level of risk. After all, the insurance provider is providing coverage in hopes of NOT having to pay benefits and burial insurance or guaranteed acceptance insurance is risky to the provider.

Policy amounts for guaranteed acceptance life insurance are generally $5,000, $10,000 or perhaps as high as $25,000. You will never find guaranteed acceptance life insurance available in the $50,000 and up benefit range. Of course, the higher the benefit amount, the greater the premium of the policy will be. These guaranteed acceptance policies may or may not carry a suicide clause; many do have a two year suicide clause included. Their policies will usually not pay in the event that death is caused by acts of war, just as with the other types of life insurance.

What Age Person Can Buy Life Insurance?

Almost anyone can purchase some type of life insurance at any age. A minor child can have life insurance purchased by the parents or legal guardian. There are a number of companies that provide guaranteed acceptance life insurance for persons as old as 80 when making the initial purchase. Of course, the older you are when buying insurance, the higher premiums you can expect to pay.

It is best, in the case of a child, that the parents wait until the child is two or three years of age to purchase life insurance because when a child is very, very young the rates are high. This is because of the higher death rate of babies due to Sudden Infant Death Syndrome and birth defects. If a permanent life insurance policy is purchased for a child of three, the premiums will be low and if carried until the child reaches 18 or 21, the cash value will be great enough to provide educational monies for college. If the child's policy is converted to an adult policy, the rates will remain low and the cash value will continue to build providing potential retirement funds if the policy is carried until retirement age.

About Beneficiary Benefits: Age, Payments and Other Facts

A person can, if named as beneficiary, receive insurance benefit payouts at any age. However, in the case of a minor child, the parent or legal guardian will be in charge of the funds until the minor reaches legal age. Often the terms of the child's receipt of the money is controlled by having a trust set up to handle the money for the child, providing for their needs but not allowing the money to be squandered.

If a beneficiary is named on an insurance policy of a person who dies, it usually takes anywhere from two to six months to receive the insurance benefits. Some insurance policies pay the full benefit amount in a single payment. Other policies are arranged so that benefit payments will be paid monthly, quarterly or yearly. Insurance benefits can be defined to be paid out much like an "annuity" where monthly payments of a percentage of the money provides for living expenses and needs.

A spouse, if one exists at the time the policy holder dies, is not necessarily the person who will receive the insurance benefits. In most cases, a husband or wife will list their spouse as the primary beneficiary of a policy, but not always. It is entirely legal for a person of competent and sound mind to leave the insurance benefits to anyone they choose. Perhaps the spouse has exceptional earning potential or is financially set and the insured might choose to leave benefits to their elderly parents so they will be taken care of for the rest of their lives. The choice is in the hands of the insured.

Beneficiaries can be changed, as well. If a person holding an insurance policy marries, divorces, has a child or additional children, adopts a child, loses a child to death or other circumstances change, the insured must submit to the insurance company the beneficiary changes they desire. If this is not done, the insurance will be paid to the last named beneficiary. There have been cases where an ex-spouse received benefits while a current spouse was left with no benefits because the insured failed to change beneficiaries! It is important to know who is listed as beneficiary on your policies and change the named beneficiaries should circumstances change!

I am in Bad Health; Can I Buy Personal Life Insurance?

The answer to this question is a very clear "maybe". You can almost certainly obtain guaranteed approval life insurance for a small sum totaling at least enough to cover burial expenses. However, depending on the health issues involved, that may be your only choice for personally purchased life insurance.

Pre-Existing Conditions on Personally Purchased Insurance

If you have had major health problems, and if a life insurance company agrees to insure your life on a term basis, it is almost certain a "rider" will be attached to the policy denying payment for death caused by the pre-existing condition. A rider is an add-on clause specifying special conditions for special situations.

But what constitutes a pre-existing condition? Some policies define pre-existing as any condition for which you have sought medical help in the last two years. Others place the five year pre-existing rule into their policies. Others will never cover anything which has required surgery or in-patient hospitalization - including mental disorders such as bipolar or major depression. Also, if you have a history of having attempted suicide as a result of your bipolar or other mental disorder, you can expect to have a rider added that states the policy will never pay if suicide is the cause of death. If you have had cancer of, let's say, the colon, the rider may state that no cancer in the digestive tract will result in benefit payout.

Be sure to read insurance policies very carefully and have the agent explain each detail. If you are a high risk to insure, consider having a paralegal or unbiased insurance expert help you understand what will and will not be covered.

Group Insurance Coverage

In the case of pre-existing conditions or people who are high risk to insure, one means of obtaining good insurance at affordable rates is to obtain group life insurance. In order to do this, however, you must be a member of a group that carries coverage.

Employers often offer group life insurance as part of the employee benefit package. This insurance is affordable and often the lion's share of the premium is paid by the employer. The employee can usually insure their spouse and children as well as themselves. Many times, pre-existing medical conditions are covered with this type of insurance, or will be covered after the policy is held for a specific period of time.

When obtaining group life insurance, there is normally no medical exam required and no medical history is taken. The policy could carry a pre-existing condition clause, usually of 2 years and most will also have a 2 year suicide clause. However, if you have had major medical problems or have been hospitalized repeatedly because of your bipolar disorder, group insurance will permit you to carry great affordable insurance since the risk to the insurance provider is spread over a whole group of people.

Another group that you may be able to join for insurance coverage is AARP (American Association of Retired People). AARP has available group insurance policies that members can join for low prices. In order to join AARP you must be 50 years of age. The yearly membership fee to be an AARP member is very low and the assurance that you can obtain insurance at affordable rates is well worth the membership fee!

If you own a small business or can start a small business, you may qualify to join an alliance of small businesses that provide benefits such as the ability to join their group insurance. The yearly membership fees are usually much higher than AARP's fee, but age is not a criterion to qualify. A small home based business, provided it is legally licensed as a business, is all that is required to qualify. The rates on insurance will be higher than those when purchasing insurance from an employer's group because there will be no employer to subsidize the premiums, but it is still a great way for the difficult to insure to obtain coverage!

There are also business services which supply payroll services and staffing services for small businesses. If you buy a service from these suppliers, you may be offered group insurance options. This is another great route to consider for a "difficult to insure" person who can start a small home business. With the Internet, it is easy to begin a business by becoming an affiliate to any of the thousands of online businesses. The amount of money you make with your business is not a qualifying factor for buying into the group policy. The fact that you own a business and buy a service from this provider is what permits you to join their group insurance.

What if the Beneficiary Dies Before the Insured?

It can happen that the named beneficiary dies before the person who is insured dies. Some people, for this reason, name more than one beneficiary. In these cases the beneficiary statement reads something like this: "Beneficiary Joe Smith if surviving or James Smith if surviving". In the example, if Joe Smith were not living, James Smith would be paid the benefit. If Joe Smith were living, he would receive the payment

But what if all named beneficiaries are dead before the insured passes away? If at all possible, it would be best for the insured to change the beneficiaries named on the insurance policy. However, life insurance can become very complicated when persons die within minutes of one another, such as in a car accident. If all beneficiaries pass away before the insured, then the insurance benefit becomes part of the insured's estate. However the estate is disposed of, whether to next of kin who is living or through an established will, the benefits from the insurance will be included in that estate.

Can Insurance Have Judgments Held Against It?

If you carry life insurance with cash value and a judgment is placed against you by the courts or by the Internal Revenue Service, you could be forced to cash in the value of the policy and pay that amount toward the judgment. Life insurance with cash value is considered an asset just like a bank account.

It is important to note that the laws controlling the issue of having judgments placed against life insurance while you are living vary from state to state. For example, The Gay Men's Health Organization's website indicates that the State of New York allows life insurance to be judgment free, but that does not mean this is true in every state. Be sure to research the state in which you live to be certain what their laws on the subject are and be certain you are obtaining the most current information.

After the insured has passed away and the benefits are paid to a named beneficiary, the money is owned by that beneficiary and no longer has anything to do with the insured who has passed away. In most states the benefit is protected from any judgment that was outstanding from the insured. However, if the beneficiary has outstanding judgments, the benefits could be impacted in that way.

If there is no named beneficiary living and the benefits are paid to an estate, it is possible that a judgment against the estate could take some or all of the insurance benefits. Again, this varies based on the laws of various states.

Because this information is not meant as legal advice in any way, you must be aware that you need to ascertain exactly what legal conditions cover your particular situation in your specific state. You also need to verify the situation regarding the type of insurance that you carry. We can not be responsible for knowing all the laws in all 50 states, nor can we suggest in any way that the information in this report is meant to direct you in making estate planning decisions.

In Closing

As you can see, almost anyone in almost any health situation or even persons with a long history of mental disorder treatment and suicide attempts can obtain at least a small amount of life insurance. Perhaps you will only be able to obtain enough to ensure that your family is not burdened with the expenses of funeral costs, but at least that will be one worry off your mind.

With a little creativity and some thorough investigation, you may well find that no matter what your health and history, you can purchase insurance through one of the several types of groups and obtain quality life insurance which can cover your loved ones' needs in the event of your untimely death.

Don't let anyone tell you that you can't have insurance just because you have bipolar disorder or another mental or physical disorder. There are ways to obtain insurance; all you have to do is research carefully. Be certain, before you sign anything, exactly what benefits you are purchasing and any special requirements for renewal.

If you do not fully understand the terms used in the insurance policies or do not feel that the insurance agent is telling you the entire story, go to the Internet for assistance. If you do not find definitions and explanations to meet your needs, seek professional help from an UNBIASED party who has no interest in whether you purchase a policy or not. That way you can find out exactly what all those confusing words mean and purchase the best policy for your situation!

Resources for More Information about Life Insurance

Visit the links below to locate more information regarding life insurance and sources from which you can purchase coverage.

http://www.iiin.com/iiincompanies_life.htm - Huge list of insurance company websites where you can obtain life insurance of all types. These links will take you to the insurance provider's website, often containing online insurance applications.

http://www.insurancenearyou.com/life-insurance/life-insurance.html - Choose your state and find insurance providers near you. Click on the provider of your choice to be directed to their website.

http://www.ncci.com/NCCI/article.aspx?cat=ii&id=il&articleUrl=http://www.ncci.com/nccisearch/contact/strategiclinks3.htm - Another very comprehensive directory of life insurance providers; simply follow the link to the company's website.

http://www.talewins.com/Life/life.htm - Lists various companies in a directory. Great information is available on this site.

http://www.intelliquote.com/default.asp?sendroicid=814e8fbe-c9a8-4a77-a278-b52c4c744033&sendroikwd=life+insurance+broad - Compare up to 250 insurance companies by filling out a simple form.

http://financialplan.about.com/cs/insuranc1/a/LifeInsurance.htm - Understanding and choosing life insurance information is available here.

http://www.consumer-action.org/English/library/insurance/1998_FactsAboutLifeIns/index.php - Facts about life insurance including who needs coverage and how to obtain coverage.

http://www.metlife.com/Applications/Corporate/WPS/CDA/PageGenerator/0,1674,P2496,00.html - Insurance facts from MetLife

http://www.prudential.com/HTMLEmbed/0,1469,intPageID%253D4234%2526blnPrinterFriendly%253D0,00.html - Prudential Financial helps you learn how much life insurance you need.

http://www.ultimateinsurancelinks.com/ - Locate nationwide sources for life insurance from this directory where you choose which type of insurance you wish to research.

http://www.whowritesit.com/ - Another great directory site to learn who writes life insurance coverage.

http://moneycentral.msn.com/content/Insurance/Insureyourlife/P35414.asp - MSN's guide to assessing your insurance needs.

About the Author

David Oliver is the founder of BipolarCentral.com, a one-stop source of information on how to cope and deal with bipolar disorder. Sign up for one of his FREE Mini Courses on bipolar by visiting FreeBipolarCourse.com

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