Q

Q

Can you get life insurance if you’re unemployed?

A

A

If you’re unemployed, you can still get life insurance coverage, although it depends on why and for how long you haven’t worked.

Nupur Gambhir

Nupur Gambhir

Published March 23, 2020

KEY TAKEAWAYS

  • Insurers offer policies based on financial justification, which is your ability to pay the policy premiums

  • If you are recently unemployed, life insurance companies will offer you coverage amounts based on your previous employment

  • If you are long-term unemployed, you are able to get a policy if you can justify your reason for unemployment to the insurer

  • You can choose a lower term length and coverage amount for a term life policy to get a life insurance policy that falls within your budget

Life insurance is a financial tool to protect your family if you were to die and your dependents were no longer receiving your earned income. If you don’t have an income to protect, what does that mean for your life insurance policy?

While insurers do look at unemployment with some skepticism, the reason and length behind your unemployment impacts your policy. If you’re recently unemployed and looking for work, you’re more likely to receive a policy in proportion to your previous income than if you have been unemployed long-term.

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Life insurance if you’re recently unemployed

Unemployment is surging in the U.S. — and with the COVID-19 pandemic it’s expected to reach unprecedented levels.

If your unemployment status is recent, at this time, there’s little to worry about when it comes to how life insurance companies might evaluate your financial viability. While there aren’t any specific guidelines in place as to how to underwrite applicants who are recently unemployed, underwriters will likely evaluate your previous occupation, previous income, and whether you are actively seeking employment.

Insurers understand that employment status can change; these factors help them understand your financial viability even when you’re not working and predict your future income. You may be asked to provide supplemental information to the underwriter, such as past pay stubs, and disclosing any assets you have will boost your application. Additionally, if you’re recently unemployed, the sooner you apply for life insurance the more favorably you’ll be viewed by the insurer. The shorter period of unemployment they see, the better.

If you already have a policy in place and later become unemployed, nothing about your life insurance policy will change — insurers cannot reduce your coverage or cancel your insurance. As long as you continue to pay your policy premiums, you will retain the same life insurance coverage.

Life insurance if you’re long-term unemployed

If you’re long-term unemployed, life insurance companies might look at your application a little more rigorously. The underwriter will want to understand why you’re unemployed. If you simply haven’t worked in a few years, it would be difficult to validate the need for coverage to the underwriter because they wouldn’t see a need for income protection. Life policies won’t cover financial support from other insurance policies, such as unemployment insurance benefits.

But if you aren’t currently employed because you’re in school full-time or manage the household, insurers look at this with more leniency and might offer substantial coverage.

Life insurance for graduate students

If you’re a full-time graduate student, you might need a life insurance policy to ensure that if you die, your cosigners aren’t liable for your student loans or that a partner isn’t left shouldering all the bills. If you’re unemployed because you’re in school full time, life insurance companies will take this into account when they’re evaluating the financial justification for insuring you. Even though you aren’t making an income now, they’ll take your projected income into consideration when determining your life insurance policy.

Graduate students may also be able to get coverage based on the following factors:

  • Coverage offered based on your parents’ life insurance policy
  • Coverage offered based on your spouse’s life insurance policy

Life insurance for non-working spouses

Since life insurance is primarily for income replacement, it may seem like non-working spouses or parents don't need it. But according to recent studies, stay-at-home parents perform about $162,581 worth of labor annually. While non-working parents don’t provide direct income, they do perform labor that would have to be replaced if they weren't around, including childcare.

A non-working spouse can qualify for a certain amount of coverage in proportion to their working spouse, though this varies for each life insurance company. The graph below demonstrates the type of coverage offered to non-working spouses by the top life insurance companies:

LIFE INSURANCE COMPANYNON-WORKING SPOUSE POLICY
AIGMatches up to $1.5 million of working spouse's coverage. Coverage limited to 10x working spouse's income if household income is less than $25k.
Banner LifeMatches working spouse's coverage. If household income is below $20k, no coverage will be offered.
Lincoln FinancialMatches 100% of working spouse's coverage. Maximum coverage is determined on a case-by-case basis.
Mutual of OmahaMatches 100% of working spouse's coverage up to a maximum of $2 million
Pacific LifeMatches 100% of working spouse's coverage up to a maximum of $3 million ages 70 and below. Matches coverage on a case-by-case basis ages 71 and above.
PrincipalN/A
ProtectiveN/A
PrudentialMatches 100% of working spouse's coverage. Maximum coverage is determined on a case-by-case basis.
SBLIMatches up to $2 million of working spouse's coverage
TransamericaMatches up to 50% of working spouse's coverage up to a maximum of $2.5 million

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Life insurance if you’re disabled and unable to work

A disability doesn’t necessarily prohibit your ability to get life insurance, but a disability that prevents you from working could make getting a life insurance policy more complicated. For starters, life insurance companies usually view a medical condition as a risk to insuring you, and whether or not they will insure you greatly depends on the type and details of your disability.

If you can’t work due to your disability, the chances of an application denial are high because you don’t have a current or projected future income to protect, which could invalidate the financial justification for a life insurance policy.

If you don’t qualify for traditional life insurance coverage, you may be able to apply for guaranteed life insurance, which accepts any applicants who can make the premium payments — though the policy is usually a last resort for people in poor health because of the costly premium payments.

Life insurance only offers financial protection to your loved ones after you die. To financially protect yourself now, consider disability insurance or social security disability. Disability insurance is an income replacement in the event that you become disabled and can no longer work, but it does not offer any protection if you are already disabled. Much like life insurance, it is a risk preparedness tool.

Affordable life insurance if you’re unemployed

If you’re not bringing in an income, it may feel like life insurance doesn’t fall into your budget right now, but there are steps you can take to get an affordable life insurance policy to offer your loved ones some financial protection:

Pick a term life policy

Term policies are recommended for most people because they tend to be the most cost-effective life insurance policy option. Permanent policies, such as whole life insurance, can be anywhere from five to 15 times costlier than term life, for the same level of coverage. And while whole life policies come with some supplemental offerings — such as a cash value investment component — they aren’t considered to be cost-effective.

Choose a lower term and coverage amount

It’s usually not recommended to choose a lower term length and coverage amount just to save on premiums — if you have to purchase a new policy later on, it will probably be costlier due to changes in age and health. But if the sweet spot between coverage and term length isn’t feasible at this time, purchasing a policy with less-than-optimal coverage is better than not getting coverage at all.

When you’re ready, you can talk to your insurer about increasing your coverage and term length so that your policy adequately accommodates your needs.

Shop around

While Policygenius quotes are based on industry averages, each life insurance company underwrites individual circumstances differently. Some life insurance companies may be costlier for people with an illness such as diabetes or a specific profile such as using marijuana. The best way to find the most affordable rates is to shop around amongst different life insurance companies.

A Policygenius advisor can work with you for free to find the best life insurance company for you.

Should you add unemployment riders to your policy?

Life is unpredictable and employment can always change. Life insurance companies offer specific riders, or policy add-ons, to account for this — they’re supplemental coverage that offer financial protection in situations other than your death. There are two riders that would protect your policy from lapsing if you are out of work, though they can only be used if the cause for unemployment is a total disability.

  • Disability income rider, which pays out a monthly stipend if you become disabled and are unable to work
  • Waiver of premium rider, which waives your premiums if you become disabled and are unable to work

But are they worth the extra cost?

While one in four adults will experience a disability in their lifetime, disability riders on life insurance policies aren’t usually worth the (high) additional cost. Here’s why: Both riders can be difficult to qualify for due to a life insurance company’s definition of disability, which is a total and permanent disability.

For affordable and comprehensive coverage, most people should purchase a disability insurance policy instead.

Insurance Expert

Nupur Gambhir

Insurance Expert

Nupur Gambhir is an insurance editor at Policygenius in New York City. Previously, she has worked in marketing and business development for travel and tech. She has a B.A. in Economics from Ohio State University.

Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.

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