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How Much Should You Pay in Life Insurance?

After health insurance, one of the biggest concerns after getting laid off is what to do about life insurance – another policy you don’t want to go without for even a minute. If you relied on employer-provided life insurance to protect your family, you're going to need a replacement. Here are your choices. (See Benefit Issues When Your Employer Goes Bankrupt.)

Life Insurance Options When You’re Unemployed

Life insurance can be harder to get in your 50s and 60s than in your 20s, 30s and 40s. You’re more likely to have a health problem or two in your medical history that could disqualify you from buying a policy that requires medical underwriting or make your premiums more expensive. Even if you’re perfectly healthy, premiums will be higher than if you were younger since the older you are, the more likely you are to die, and the insurer is therefore more likely to pay out on your policy. But if you don’t have enough of a nest egg to support your family if you predecease them, you still need life insurance, and there are ways to get it no matter what your circumstances are.

Anthony Martin, a licensed life insurance agent with Choice Mutual, recommends working with an experienced broker with access to all the top insurers in the nation to find the best life insurance policy to replace the one you lost when you lost your job. Check your state insurance department’s website to verify that the broker is licensed and that he or she is appointed with multiple insurance companies. (To be appointed means to be authorized to sell a company’s policies.)

“It's quite common for insurance company A to decline you for a specific health condition, but company B accepts your health issue with open arms. This is why working with an independent broker is so important,” Martin says. He adds that it’s rather uncommon for someone to flat out not qualify for medically underwritten life insurance – it’s usually just a matter of finding the right company and seeing how much it will cost.

If you have a health condition that does mean you can’t qualify for a medically underwritten policy, you can get a guaranteed issue life insurance policy that does not ask health questions or check your medical history in any way. Guaranteed issue life insurance is a type of funeral insurance... which is type of whole life insurance... which is a type of permanent life insurance. Confused yet? Don’t be – it’s not as complicated as it sounds. Whole life insurance is “permanent” because it doesn’t expire after a certain number of years but stays with you until you die, as long as you pay the premiums.

Permanent vs. Term Life Insurance

Permanent life insurance is far easier to qualify for than term, Martin says, because the risk to the insurance company is much higher with term. With a term policy, the insurer banks on the policyholder outliving the term so it never has to pay a claim. If it does have to pay a claim, the amount of the claim will be much higher than the premiums the policyholder has paid in. Insurance companies want to issue term policies to clients they expect to outlive the policy based on their medical history. With a permanent policy, the policyholder pays higher premiums and pays them until death, so the insurance company is less likely to lose money and may even make a profit if the policyholder lives long enough.

The drawback of permanent life insurance is higher premiums for the same amount of coverage that a term policy would provide. And for guaranteed issue funeral insurance policies (but not all funeral insurance policies), there is a two-year waiting period during which the policy will not pay out, but will instead refund 110% of the premiums paid if you die. However, guaranteed issue policies will cover people who are very unhealthy. (For more on which type of life insurance to consider buying, see Is Life Insurance a Smart Investment?)

Martin says everyone should have an individual policy to guarantee coverage for their family because “it’s nearly unheard of for any employer to continue life insurance benefits post-employment,” whether you leave voluntarily or are laid off. (See Is Your Employer-Provided Life Insurance Coverage Enough?) The policy you buy now, in other words, should be one you’ll want to keep even if you get a new job that has a life insurance benefit.

RiseSmart indicates that about half of companies offer life insurance benefits as part of a severance package, and you’re more likely to receive those benefits if you have an officer, manager, senior executive or professional position than if you have an administrative or clerical one. Still, severance benefits are only temporary.

If your spouse works and has life insurance benefits, he or she may be able to get life insurance for you that way, with no medical underwriting. But if your spouse gets laid off, you’ll be right back where you started. While you’re shopping for an individual policy, your spouse – who is only or primarily covered by a work plan – might consider doing so, too.

You can quickly and easily get a rough idea of how much you might pay for life insurance online. For example, NerdWallet’s life insurance quote tool, Quotacy, doesn’t require you to submit any contact information and you can easily adjust parameters for the dollar amount and duration of coverage you want in order to get an annual premium estimate. After answering a few quick questions about your height and weight, tobacco usage, heart health and family history, you’ll get a list of insurers that might offer you coverage, with estimated premiums for each. You can then proceed with applying for a policy online with one of these insurers, if you wish.

As an example (using Quotacy), a 64-year-old man might pay between $395 and $520 per month, or $4,634 to $6,060, for $500,000 in coverage for a 20-year term policy if he takes medication for high blood pressure and cholesterol. That probably seems way too expensive for someone who is unemployed. To lower the cost, he could shorten the policy term and/or reduce the coverage amount. A $250,000 policy with a 10-year term would be a much more affordable $104 to $144 per month, or $1,225 to $1,650 per year. (See Strategies to Use Life Insurance for Retirement.)

Next, let’s talk about how to find a job when you’re 50 or older.

Job Hunting for People Over 50