Does Life Insurance Payout for Terminal Illness?
Consumers of insurance are often weary of the fine print that can come with an insurance policy, and may ask - does life insurance payout for terminal illness?
A life insurance policy is a contract created between an individual and the insurance company, and is based on the health of the insured at the time of application. The insurance company has agreed to cover that person’s life no matter what happens to their health after the time of application, particularly after the standard two year contestability period. In other words, as long as the insured did not have a terminal illness at the time of application, but was later diagnosed with a terminal illness, they will be covered under the terms of the contract. In fact, that’s what life insurance is for, in case you pass away earlier than expected.
Did You Know You Can Sell Your Life Insurance Policy?
If you’ve been diagnosed with a terminal illness, you might want to consider the possibility of selling your life insurance policy to an investor with a life settlement. Selling your policy means you would receive a living benefit instead of waiting to pass away to leave a death benefit. If you do have a terminal illness, then you’re likely to get a significant portion of your death benefit in a life settlement.
To find out how much your policy might be worth to an investor, take 30 seconds to fill out the free appraisal form, and our licensed broker will provide a free appraisal with no obligations.
The life settlement industry is a multi-billion dollar marketplace with a wide range of investors looking to purchase existing life insurance policies. Life settlements are considered an alternative investment to the stock market, so mutual fund companies and hedge funds will buy life insurance policies to diversify their portfolios.
Investors will hire underwriters to review the current health of the insured on a life insurance policy. Depending on how many years and months the statistics show for your age and impairments, investors have somewhat of a predictable model for how many premiums they are likely to pay on the contract, and how long their money will be invested before it is returned by the death benefit. So a contract on which someone had a 5 year life expectancy would mean an investor would only have to make a few years of premiums while also getting their investment back in a relatively short period of time, and would pay possibly around 50% of the death benefit. Shorten that life expectancy and they might pay up to 70% of the death benefit.
On the other hand, if you were to get a 10 year life expectancy, while you may receive considerable offers, the time value of money and interest required to make the investment worthy quickly lowers how much an investor is willing to pay. So again, if you have been diagnosed with a terminal illness, you have a good chance at getting a large settlement to help you enjoy the time you have left as much as you can.
Some people use a life settlement to distribute wealth while they are still living, while others use it to retire from work and not worry about covering their living expenses or medical bills. I recently had a client receive $500k for their $750k policy. With that kind of money, suddenly spending $15k on a memorable family vacation is attainable. Other clients have used their settlement to help their kids make a down payment on a rental property. Even though they received less than the death benefit, the value of the property has gone up so much that it made up the difference, all the while generating a positive income each year from the rental income. While managing a home requires more work than keeping up a life insurance policy, the money is likely to work better for you.
Does Life Insurance Payout for Cancer Patients?
If you’ve been diagnosed with cancer and own a life insurance policy, a common question will be - does life insurance payout for cancer patients? Another question is - what happens to my life insurance if I get cancer?
Going back to the beginning of the article, as long as the insured did not have cancer at the time of application, or at least appropriately disclosed that they did and were still approved for coverage, then yes the insurance company has to pay out the death benefit.
Consumers have become weary of insurance companies for their fine print and sneaky ways to get out of paying claims. The good news with life insurance is that it’s pretty hard to dispute a death certificate. Every life insurance contract comes with a two year contestability period, and what that means is if the insured were to die in the first two years of a policy contract, the insurance company can contest the payout, and this is to protect themselves.
Imagine if someone was terminally ill and decided to apply for life insurance but didn’t disclose their health issues on the application? Most likely the underwriter would catch it in the medical records, but even so, people might slip through the cracks and suddenly everyone is creating insurance fraud to beat the system. If they determine that you did not disclose critical health information on the application, then they typically just return the premiums instead of paying a death benefit when the death occurs during that 2 year contestability period. After the two year period the policy is considered incontestable, and unless there’s a wrongful death investigation, they will pay out the death benefit as promised without contesting it. Some carriers process claims faster than others, but the department of insurance in each state is there to make sure carriers remain solvent and claims are paid appropriately.
Answering the question - what happens to my life insurance if I get cancer, there’s no need to inform your life insurance that you have cancer and have owned the policy for some time. As long as you pay the premiums to keep the policy in-force, the insurance company has to honor the contract. That is the reason for having life insurance as unfortunate things like cancer can decline our health and we may pass away earlier than expected. If your policy happens to have a waiver of premium and your cancer has spread where doctors have had to remove limbs, you might qualify for this rider which no longer requires you to pay premiums anymore. Beyond that, if you happen to pass away from cancer, the insurance company is on the hook to pay the death benefit to your beneficiaries.
If you’ve been diagnosed with a serious form of cancer, perhaps you might consider the benefits of selling your life insurance policy to access cash now. Working with a life settlement broker is your best chance at getting the most amount of money for your policy in a settlement, and Life Settlement Option is a broker solution with a strong success rate at helping clients get more money for their policy.
Recently we had a client who decided to try getting an offer for his $500k life insurance policy after seeing a TV commercial. He called the company and explained that he had been diagnosed with stage 4 cancer. After a review of his medical records and policy, the company offered him $30k, and countered with $48k after further discussion. This client then found me online, and had me shop his case around. The first offer I received was for $150k, and ultimately we bid the case up to $250k. The buyer of the policy paid the broker commission beyond the $250k, so was it worth it for the seller to work with a broker? For an additional $200k, or five times his original offer I hope you would agree.
In another case we had a 73 year old who was diagnosed with bone marrow cancer, something that would likely give him another 8 - 10 years. His $1MM term policy was about to expire, however we were able to convert the policy to a universal life policy and sell it for $90k. The client had spent $65k over 20 years paying the premiums on his term policy that were about to go to waste, and suddenly he was getting all of his money back and turning a profit after working with us.
What’s often considered in clients with cancer are what stages the cancer is in, and are things improving or declining. With modern medicine sometimes people are able to beat cancer and remain in remission for years, while others are less fortunate. If you’ve been in remission for some time, underwriters often have to assume that the cancer is no longer a health concern, so you may get longer underwriting and smaller offers than hoped.
Do you have to tell your life insurance if you get cancer? If the policy already exists, then no you don’t have to tell your life insurance if you get cancer. If you’re applying for a new policy, then yes you do have to disclose it or else it is considered insurance fraud. Cancer will not trigger accidental death claims as those only cover things like car accidents and other physical accidents.
If you have a serious form of cancer and are curious about how much an investor would pay to purchase your life insurance policy, then fill out the free appraisal form and we’ll be happy to give you a no-obligation appraisal.
You can read more about life settlement examples on our site, or use our life settlement calculator to get a better sense of values.