Can You Buy Life Insurance for a Dying Loved One?

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Most people who own life insurance didn’t go out in search of it. People usually buy life insurance when they’re approached directly by a life insurance agent or receive a solicitation through the mail. 

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The majority of people that approach a life insurance agent or life insurance company and are interested in speaking with someone about buying life insurance are either in ill health and know it, or they suspect they are and want to buy life insurance before their illness is diagnosed.

But can you buy life insurance for someone who is dying? Fortunately, there are some life insurance companies that will sell policies to people who have been diagnosed with a terminal illness.

Are You Allowed to Buy Life Insurance for a Dying Loved One?

Yes, you are allowed to buy life insurance for a dying loved one. But there is one very important condition attached to that answer: the dying loved one must be aware that you’re purchasing a policy that pays you or someone else a death benefit when they die.

Anytime a life insurance application is received by the insurance company, they’re going to verify that the insured individual signed the application and know their life is being insured.

Many times life insurance companies will not only verify the insured individual signed the application by reviewing it, but they’ll call the insured person by telephone and get verbal verification that they are aware that an application for life insurance has been filed with their name on it.

Something that also needs to be considered when buying life insurance for a dying loved one is a life insurance industry term called “insurable interest.” Insurable interest means that the beneficiary of a life insurance policy must be faced with a reasonable financial hardship or financial loss when the insured person passes away.

This ensures that there is never a financial incentive for someone to buy a life insurance policy on someone else’s life and profit from their death. 

Example: A life insurance company would approve an application with Mary being the insured and Jane, Mary’s daughter, being the beneficiary because of their relationship and because Jane needs the policy’s death benefit to pay for a funeral with life insurance

However, if Mary’s next-door neighbor Howard was to apply for a policy covering Mary, the life insurance company would look into why Howard is buying a policy on his neighbor. They’ll be checking to see if there is an insurable interest and that Howard would suffer an economic loss because of Mary’s death.

What to Consider Before You Buy Life Insurance for a Dying Loved One

There are several important things to consider before you buy life insurance for a dying loved one.

First, the type of policy you’re going to be able to buy is very limited because insurance companies don’t like to accept the risk that they’ll definitely be paying out a death benefit in a relatively short period of time. For that reason, if your loved one has been diagnosed as terminally ill, you’ll be able to find a limited number of companies that will sell you a “guaranteed issue life insurance policy.”

Guaranteed issue life means exactly what it says: the life insurance policy applied for is guaranteed to be issued by the life insurance company regardless of the health condition of the insured individual—guaranteed. 

Second, since the life insurance company knows that they’re very likely going to have to pay a death claim, they cap the face amount of each life insurance policy. It’s up to the life insurance company to decide what that cap is, but it ranges anywhere from $10,000 to $25,000.

Third, no matter how much the death benefit amount you selected for your loved one is, the life insurance company is only going to pay out a relatively small amount of that death benefit if your loved one passes away during the first two years of the policy being issued.

Example: Roger buys a $10,000 guaranteed issue life insurance policy from Consolidated Life after he’s diagnosed with inoperable Stage 4 brain cancer. If Roger passes away in the first six months after being issued the policy, Consolidated Life will pay no death benefit at all but will refund all premiums Roger paid to them.

If Roger passes away during months 6-12 after buying the policy CConsolidated will pay out 25% of the face amount of the policy, months 12-18 at a rate of 50%, and months 18-24 at 75%.

How to Buy a Life Insurance Policy for a Terminally Ill Loved One

Once you’ve decided that you and your loved one are comfortable buying a guaranteed issue life insurance policy, there are a few easy steps to follow.

  1. Find several companies that sell guaranteed issue life insurance. You can find them by Googling “guaranteed issue life insurance” or “life insurance for the terminally ill.”
  2. Contact at least three companies to get competitive quotes. All policies are not the same.
  3. Complete the application. An application for guaranteed issue life insurance will contain no medical questions, and no doctor’s records or exam will be ordered.
  4. Review the policy carefully when you receive it. Make sure the terms of the policy are the same as you were told they would be, like payout percentages during the first couple of years. Also double-check to be sure the insured’s name and beneficiary’s name are accurate and spelled correctly.
  5. Put the policy somewhere that at least two family members can locate it when your loved one passes away.

Are There Any Alternatives to Life Insurance for a Dying Loved One?

There are several non-insurance alternatives to life insurance to consider. Here are the most important ones to keep in mind. 

Prepaid funeral plan

This is the least favorable of your non-insurance options, but it is worth considering. With a prepaid funeral plan, you work with a funeral home and make final arrangements in advance of your loved one’s death. You’ll choose the casket, have the obituary written, pay for embalming services, cremation (if applicable), select a cemetery plot, pay for a headstone, and many more details associated with a funeral and burial. 

There are two negatives with prepaid funeral plans that must be considered:

  1. Prepaid plans have to be paid for in full before a funeral service and burial can be held.
  2. They aren’t inexpensive. They’ll typically cost anywhere from $8,000 to $15,000.

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Personal savings 

Using an existing joint savings account or opening a new one for the purpose of paying for final expenses is another option. Upon the passing of your loved one, as a joint account owner, you’ll be able to access the money in the account and pay for final expenses. This is also a challenging option because you’ll need at least $10,000 in the account to pay the average cost of a funeral.

Payable on death account (Totten trust) 

If your loved one wants to maintain sole control of their bank accounts while they’re alive,, a payable on death account allows them to name a beneficiary of their bank accounts. Funds from the account can then be used to pay for final expenses.

Religious groups 

If you or your loved one belongs to a faith-based organization, many churches and places of worship allow members to hold funerals and memorial services there. A donation is usually expected but is considerably less than the cost of services at a funeral home. Some religious groups will also provide financial aid to help a family reduce final expense costs.

Online fundraising

The most well-known of these is GoFundMe. You can set this page up to allow friends, family, and other individuals to donate to your loved one’s final expense costs. Making a donation is as easy as visiting a dedicated web page and contributing as much as you’re comfortable with.

These pages have been very successful in helping families pay for final expenses, as well as outstanding medical bills, which are many times substantial for someone who is terminally ill.

Social Security

It’s not much, but your loved one may be eligible for a one-time death benefit of $255. Funeral homes will often help bereaved families with arranging this as part of their services. This small benefit can be applied to the cost of the funeral.

Federal Emergency Management Agency (FEMA)

There is plenty of red tape involved since FEMA is a government agency, but they do have funds available to help with the final expenses of someone who has perished in a natural disaster, such as a flood, hurricane, fire, etc.

When Is The Best Time to Buy Life Insurance?

If you’re reading this article because you have a loved one, such as an aging parent, that is terminally ill, it’s our hope that you’ve been provided with some viable options to help your family financially during what is a very difficult time. The solutions provided are not ideal, but combined, they may hopefully pay for most, or all, of your loved one’s final burial expenses and unpaid medical bills.

That being said, if you or other loved ones who can medically qualify for traditional life insurance haven’t yet taken care of your life insurance needs, today is the perfect day to do so. As you’ve undoubtedly experienced, life takes some very sudden and unexpected twists and turns that can turn our world upside down, personally and financially.

While the best support system you can have emotionally is through family and friends, the best support system you’ll have financially when you or a loved one passes away is life insurance. Life insurance can fund many important financial obligations, such as:

  • Income replacement
  • Mortgage payoff
  • College education funding
  • Retirement funding
  • Debt reduction
  • Much more

If it’s affordable for you, a permanent life insurance policy like whole life or universal life is advisable because not only do these policies provide a death benefit to the named beneficiaries, but they accumulate cash value which can be withdrawn or borrowed down the road as the policy anniversaries pass.

Term life insurance is the most affordable option when buying personal life insurance. The monthly premiums are lower because these policies don’t build cash value; they strictly provide a death benefit. Many financial planners advocate buying term insurance instead of whole life or universal life insurance and investing the premium savings in a mutual fund or another type of interest-bearing account.

Don’t Forget the Group Life Insurance Option

If you work for an organization that offers life insurance as a benefit to employees, seriously consider enrolling in that coverage. Group life insurance is typically guaranteed issue, and many times it is portable, so you can take it with you if you leave the company. 

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