High Risk Life Insurance
Insurance is the practice of substituting cost for risk. This suggests that it is possible to insure almost any risk if sufficient cost is incurred. This is the underlying principle behind High Risk Life Insurance. People who engage in high-risk activities – whether as a vocation or avocation – can obtain life insurance provided they are willing to incur the requisite cost.
The Need for High Risk Life Insurance
Some people run a markedly-higher risk than others of dying before reaching their statistical life expectancy. There are two basic reasons for belonging to this high-risk class.
One reason is participation in a high-risk occupation or hobby. Examples include taxi-cab driving, law enforcement, firefighting, commercial fishing, vehicle racing, piloting private aircraft, scuba diving, mountain or rock climbing, and whitewater rafting. Participants in these activities run the risk of dying prematurely through accidental or deliberate means.
The second reason is possession of a high-risk health condition. Examples include cancer, diabetes, heart disease, epilepsy, sleep apnea, HIV/AIDS, hepatitis and kidney, liver and respiratory disease. Smoking, although associated with shorter life spans, is treated as a special class of its own, apart from the higher-risk activities and conditions listed here.
Many of the people is the above-listed categories have an insurance need no less urgent than more staid and healthier people. For this reason, specialized companies have sprung up whose main clientele consists of high-risk insurance applicants.
The Modus Operandi of High Risk Life Insurance Companies
The risk of mortality for high-risk groups is much greater than for other people. How, then, do companies succeed in offering life insurance to high-risk groups without becoming insolvent? The stylized facts of High Risk Life Insurance tell the story.
- High risk life insurance is usually whole-life insurance: Whole life insurance features much higher premiums than does term insurance and whole-life premiums are “front-loaded;” that is, they exceed the cost of insurance by more in the early years of the policy than in later years. The cash value of the policy decreases the net amount at risk for the insurance company since, in the event of a death-benefit payout, the cash value reverts to the insurance company. These factors help provide the profit margin that offsets the greater likelihood of paying the death benefit.
- Death benefits are smaller for high risk life insurance than for otherwise-comparable policies: This also reduces the net amount at risk to the insurance company, making up for the greater probability of death by insured individuals.
- High risk life insurance policies feature fewer beneficial riders and more restrictions than other policies: Another way that high-risk insurers compensate for the handicap of higher mortality rates among their customers is by offering fewer beneficial options (known as “riders”) and more restrictions on coverage. For example, many high risk life insurance policies will not pay benefits during the first year of coverage.
- The high risk life insurance application process is less complicated and rigorous, implying lower administrative and managerial costs incurred by insurance companies: Although it seems counterintuitive, the application process for high risk life insurance is often easier than for other types of policy. Ordinarily, health examinations strive to uncover health conditions that applicants hide or are unaware of. Here, the insurance companies already know the worst up front, so are less motivated to look for other adverse conditions. It is very likely that any other health conditions the applicant has are less risky than the condition that earns the high-risk rating.
- High risk life insurance companies often employ different underwriting standards: Most insurance companies still use 30-year-old mortality tables that tend to overstate mortality risk. High risk life insurance specialty companies often use newer mortality tables and “clinical medical underwriting” standards that reflect the newest medical advances and advice that tend to extend human mortality.
The Benefits of High Risk Life Insurance
The biggest benefit of high risk life Insurance is obvious: People who would otherwise bear formidable levels of risk are relieved of those burdens. High risk life insurance companies are a classic example of free-market economics in operation. Apart from this, the other benefits are the same as those of any life insurance policy.
Tips for Buying High Risk Life Insurance
Seeking out a specialist insurance broker allows only one medical exam and one set of application papers to be submitted. Since high risk life Insurance can demand more comparison shopping and vetting than other types of life insurance, this is an advantage not to be sneezed at.
Another tip is to exhaust all avenues for employer-provided life insurance before going to outside specialists. Employers often have the motivation and the deep pockets necessary for obtaining high risk insurance benefits for their employees.
High risk life insurance allows many people who would otherwise be uninsurable to obtain life insurance coverage. This benefit has its tradeoffs: higher premiums associated with whole-life insurance, lower death benefits than for comparable standard coverage and more restrictive, less indulgent policies. These added costs do not cancel out the numerous benefits enjoyed by high risk life insurance policyholders.
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