Can a person with a felony get life insurance?
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UPDATED: Jan 17, 2017
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- A person who has had a felony conviction may be able to get life insurance, but they should not expect it to be easy
- In no state will a current prison inmate be eligible to purchase life insurance
- A parolee or probationer is no more likely to qualify for life insurance than an active inmate
- If a personal life insurance policy is in place before a felony conviction, as long as the premiums are paid, it cannot be canceled.
- If the only life insurance a person has is through their employer’s group plan, if they are put in jail, that group coverage ceases immediately.
Why Don’t Life Insurance Companies Insure Felons?
It may be very difficult to get life insurance on your life once you enter the criminal justice system.
Once convicted of a crime, a citizen may lose a number of rights and privileges they had taken for granted, and life insurance may be one of them.
Prisons are violent places. The prevalence of violent people in the prison population relative to the general population make it a very dangerous place.
Insurance companies do not knowingly walk into danger. They will politely say “no” to an insurance application from an incarcerated person.
Once leaving prison, redemption might not be close at hand. According to the federal Bureau of Justice Statistics, one in five people who have been to prison are arrested again within the first year.
At the three-year mark, that statistic rises to 35 percent. Insurance companies don’t consider this statistic reflective of a suitable risk.
Then there’s the fact that being an ex-offender, is very, very hard. Many people find the release back into society unbearable. They face systemic hurdles every step of the way.
To the just-released person who has served their time and is returning home to resume all the responsibilities that were once theirs like protecting a family’s future this may not seem fair.
But the insurance company like everyone else in society truly will be a little skittish about the ex-offender for awhile.
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How Can a Family Cope With the Breadwinner’s Lack of Life Insurance?
There are creative ways for a person with a felony in his or her background to make sure their family can have at least a basic level of life insurance coverage.
This way, if they pass away, they can be buried with dignity and the family can have a moment financially to catch its breath as it grieves.
This will likely be some kind of term insurance because it is the cheapest kind. “Term” insurance insures for the “pure” risk of death.
It is “use-or-lose” insurance, triggered only by the death of the insured.
But the informed consumer or the person who is working with a licensed and experienced life insurance agent will own enough of this kind of insurance to also pay off the mortgage, or reduce it significantly, the credit cards, and maybe cover college for the children.
In other words, the policy is a plan to replace themselves: if they are no longer around to work hard and accomplish these big goals, at least the family can live out many of the dreams they shared.
That’s what we all want, right?
If the family has a solid income, it may be a good idea to take out an insurance policy on all the other members of the family, including the children. Once the spouse has insurance, the children may be insured for up to 50 percent of that amount.
Risk comes in many shapes and sizes. We do not know where it lies. Any one of these small policies could make a difference for the family one day.
There are other types of insurance, as well, less well known. The necessity to work around a felony conviction may require a knowledge of more sophisticated uses of life insurance.
Learn About the Many Uses of Life Insurance
There is more to life insurance than term life, and the person who is actively managing their money is likely to use a number of different strategies inside their portfolio tagged “Life Insurance.”
They may have permanent life insurance that is either a whole life or an indexed universal life product. The whole life product will provide basic life insurance coverage as well as a modest amount of interest rate growth on a cash balance as it increases.
The indexed universal life allows the policy owner to overfund the policy aggressively in order to create a significant cash balance. This balance earns interest and, once accumulated, can be borrowed without a tax liability.
This tax advantage is one of the most popular provisions of this type of insurance. Additionally, some of the interest rates in indexed universal life are very attractive.
But an indexed universal life policy requires a long-term commitment, up to 15 years to be able to walk away with all paid premiums if you change your mind.
Many people re challenged by the length of the commitment.
It is popular, nevertheless, because of the tax benefit and because, once the premiums are current, the premium amount and the policy itself are guaranteed for life.
One of these types of life insurance may provide the opportunity to structure a safety net around a family, even if a primary family member has faced incarceration and can no longer be insured.
Team Up With a Licensed Life Insurance Agent
A life insurance agent that you have carefully selected and vetted is the person qualified to discuss all the options available, and to design a life insurance coverage plan that meets each family’s specific needs and goals, and works around the challenges.
This person should be part of your personal “executive team” along with your bookkeeper, your CPA, and your broker.
None of the other players can fulfill the same role as the life insurance agent, so don’t forgo this specialized advice.
While all families living in the same country will have many of the same structural needs, each family itself is different. Today, the meaning of the word “family” itself has been through many iterations, with “blended” families of various types being far from unusual.
By any measure, the sudden arrest and incarceration of a breadwinner, or the returning presence of a loved one just-released from prison is a major family event.
Insurance planning, or a strategy for managing the sudden loss of insurance, is a potentially powerful area of strategy for a family in crisis.
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