But I've been turned down before

The fact that you've been turned down before doesn't mean you can't get life insurance now. Life insurance for people with prior health conditions has become more available and affordable because people are living longer, resulting in more liberal insurer underwriting. Life insurance underwriting is the process used by the company's underwriter to decide whether to insure you and at what rate or cost, based on your medical history and sometimes other factors as well. In general, the longer your life expectancy as determined by the underwriter, the more likely you will qualify for life insurance, and the more affordable the cost.

What kind of information will insurers need?

Insurance companies generally request medical information from your primary care physician and any other doctors or hospitals that treated you for your illness. The insurer will also want to know the type and severity of your illness, the length of time since you were treated for the illness, and your prognosis.

The company may ask you to submit to an independent medical examination. Finally, the life insurance application will solicit information about the health history of your family, including your parents and siblings.

Will it cost more?

Possibly. Insurance companies commonly view your health history differently than your physician does. For instance, if you've had a heart attack, but now are active and leading a normal life, your doctor may say you're doing fine. But an insurance company's underwriter will review volumes of actuarial statistics and may conclude that, given your heart attack, your life expectancy is shorter than that of a person of the same age and gender who hasn't had a heart attack. Because it expects to have to pay the death benefit sooner, the company expects to have less time to collect premiums. The insurer then assesses a higher premium cost to you to compensate for the anticipated shorter premium-paying period.

Some helpful tips:

Discuss your situation with your doctor. You will then have some idea of the medical opinion your physician will give to the insurer concerning your prognosis.

Shop for life insurance. Different insurance companies often take significantly different views of various illnesses. While one company may deny coverage entirely or charge a much higher premium due to a specific ailment, another insurer may offer coverage for the same illness at a lower cost.

Get help. Some companies offer insurance to higher-risk applicants because they share the cost with another insurance company.Companies that work with other companies (called "reinsurance") are more likely to insure you if you have health issues. Consider using special-risk advocates or impaired-risk specialists who help find impaired-risk life insurance coverage.

Start with your employer. Many offer life insurance to all employees, regardless of their health histories. Some alumni associations and professional organizations also offer life insurance on a group basis without requiring a physical.

Show the insurer you're doing better. Demonstrate that you're taking steps to control or improve your health. Proof that you exercise and have a healthy diet increase the chances of living a longer life, making you a better insurance risk.

As the number of older Americans has grown, so has the need for long-term care. To encourage more people to buy long-term care insurance, states have teamed up with private insurers to develop special long-term care (LTC) policies. These "Partnership" policies combine the features and benefits of traditional LTC insurance with Medicaid asset protection.

Individuals who purchase Partnership policies will be able to protect a portion of their assets should they need to apply for Medicaid after using up their long-term care insurance benefits. Although they must meet other Medicaid eligibility requirements, they will not be required to "spend down" to the same asset levels as those who have not purchased Partnership policies.

Background

In the 1980s, Congress authorized the first long-term care partnership programs in four states: California, New York, Indiana, and Connecticut. The aim of these partnerships was to lessen the financial strain of long-term care on state Medicaid programs by encouraging the purchase of private long-term care insurance, especially by individuals with moderate incomes who may be less likely to buy long-term care insurance and more likely to eventually need to rely on Medicaid. However, the Omnibus Budget and Reconciliation Act (OBRA) of 1993 restricted further development of Partnership programs in other states.

The Deficit Reduction Act (DRA) of 2005 removed the OBRA moratorium and allowed all states the opportunity to implement Partnership programs. Currently, 22 states either have Partnership programs in place or legislation pending for program implementation.

What is a Partnership program?

A Partnership program is a collaboration or "partnership" between a state and private insurance companies selling long-term care insurance in that state. Each state determines if and when it wants to implement a Partnership program, and authorizes insurance companies to develop and sell LTC Partnership policies to state residents.

What is a Partnership policy?

LTC Partnership policies are very similar to traditional (non-Partnership) LTC policies. Although they generally include the same features and benefits, Partnership policies authorized by the DRA must also have certain built-in consumer protections that traditional LTC policies are not required to have (Partnership policies in the original four states are exempt from these requirements).

Dollar-for-dollar asset protection

Partnership policies must include dollar-for-dollar asset protection. Under this model, the amount of assets that are protected from Medicaid spend-down requirements equals the dollar value of the benefits paid by the LTC Partnership policy. For example, you buy a Partnership policy with a lifetime maximum benefit of $150,000. You eventually require long-term care and exhaust your Partnership insurance benefits, but you still need long-term care. If you did not have a Partnership policy, you'd likely have to deplete all of your remaining assets, subject to state exemptions and allowances, before you could qualify for Medicaid. However, because you have a Partnership policy, you can keep $150,000 in assets in addition to any other assets allowed by your state's Medicaid program, and still qualify for Medicaid (assuming you meet income standards and other eligibility requirements), and the state won't seek recovery of those assets from your estate.

Inflation protection

While traditional LTC policies may or may not include inflation protection, all Partnership policies must include age-based inflation protection if purchased prior to age 76. Inflation protection helps policy benefits keep pace with the rising cost of long-term care services.

Partnership policies must be tax qualified

This means that they must meet standards specified by the Health Insurance Portability and Accountability Act (HIPAA). Tax-qualified policy premiums may be deductible as a medical expense if you meet certain requirements (check with your tax professional for details), and policy benefits received are generally not included as ordinary income for federal income tax purposes. Most, but not all, traditional LTC policies are tax qualified.

Where can you find out more?

State Partnerships are still being developed, and will vary from state to state. To find out if LTC Partnership policies are available in your state, contact your state's Department of Insurance or long-term care Partnership office.

Pay what you want, when you want

When you buy UL, the policy provides for planned level premium payments. But you don't have to make regular or level payments each payment period (e.g., monthly, yearly). You can make larger or smaller payments, more or less frequently than planned. With each payment you make, the insurance company deducts a portion for administrative expenses related to your policy. The remainder is credited to a cash value account, from which the cost of insurance coverage (the death benefit) is deducted, with the balance earning interest.

Your policy will remain in force as long as your cash value is sufficient to cover current expense and mortality charges, even if you don't make all the planned premium payments. Your cash value accumulates tax-deferred interest at rates determined by the company (including a guaranteed* minimum rate of interest).

Choose (and change) your death benefit

With UL, you can also increase or decrease your policy's death benefit as your insurance needs change. You can usually lower the death benefit at any time, but if you want to increase the amount of coverage, you'll need to go through the company's underwriting process again, which may include a new medical exam. Adding to UL's flexibility is the option to choose a level or enhanced death benefit.

Option 1 or option A pays a level death benefit that remains the same as long as you don't ask to change it. As the policy's cash value grows, the net amount at risk (the amount the insurance company has to pay out of its own pocket at your death) decreases. As the net amount at risk becomes lower, so too does your premium cost.

For example, if you own a $200,000 policy with $50,000 of current cash value, your premium is based on $150,000 of insurance coverage, even though the total death benefit is $200,000.

Option 2 or option B, the enhanced benefit, allows you to add the cash value to the face amount of the death benefit. For example, if your $200,000 policy has $50,000 of cash value when you die, your beneficiary receives $250,000. With this option, your premium cost is based on $200,000 of insurance, but you get more death benefit ($250,000) for your money.

Getting to the policy's cash value

As with most types of permanent life insurance, you can generally obtain loans from your insurance company by using the cash value of your universal life policy as collateral. Loans are charged interest at current or fixed rates. Be aware that if you don't pay back a loan, the death benefit payable to your beneficiary will be reduced by the amount of any outstanding loans plus accumulated interest at your death.

A unique feature of universal life insurance is that it allows you to take partial withdrawals from your policy's cash value. Depending on the policy, you may be able to withdraw up to 90% of the cash value. However, such withdrawals are regarded as permanent withdrawals and will reduce your policy's death benefit. Partial withdrawals are taken from principal first and are not subject to income tax. Withdrawals are usually not allowed in the first few years of the policy. Withdrawals of amounts exceeding your policy's principal may be subject to tax. There may be a surrender fee charged for full or partial surrenders. Talk to your insurance company, agent, broker, or tax professional before making a withdrawal.

*Any guarantees associated with payment of death benefits, income options, or rates of return are subject to the claims-paying ability of the insurer.

Caution: Any guarantees associated with payment of death benefits, income options, or rates of return are subject to the claims-paying ability of the insurer.

If you need a large amount of life insurance protection at an affordable price to cover short- or intermediate-term needs, term insurance may be the most appropriate option. On the other hand, if you will have an ongoing need for protection, or want the flexibility of building a cash reserve that you can borrow or withdraw from, permanent insurance may be the better choice. Term and permanent life insurance each have distinct advantages and disadvantages. So, it's probably not surprising that sometimes the best option is to consider buying both.

Planning for a young family

Let's say you and your spouse each plan to work for another 25 years. You determine that if either of you died, the survivor would need $250,000 to replace the lost income of the deceased spouse. One option to consider might be the purchase of a $100,000 permanent cash value life insurance policy and a $150,000 25-year term insurance policy on each of your lives. Using this approach, you can potentially:

• Meet your need for income replacement now, largely with lower cost term insurance
• Address a need for more permanent insurance later by converting some or all of the term insurance to permanent insurance without the need for further underwriting or new medical exams, and
• Provide a foundation of permanent insurance that you will always have, and that will build cash values that you can use for future expenses (e.g., college funding or your retirement).

Planning for a child with special needs

If you're the parent of a child with special needs, you might find that purchasing both term and permanent insurance can help provide the broad protection your family needs. For example, if you were to die prematurely, your family would probably need funds to pay off immediate debts and obligations and to replace your lost income; term insurance might be the most affordable way to provide a lump sum to cover those needs.

However, your child will have other financial needs (e.g., specialized medical treatment, schooling, residential programs, caregiving services) that will probably exist even after your death, and the death of your spouse. An additional permanent insurance policy--in this case a second-to-die policy, which would pay a death benefit upon the death of the last surviving parent--might provide the funds to meet these additional needs. And, because a second-to-die policy only pays a death benefit upon the death of the last surviving spouse, it generally costs less than buying individual life insurance policies for you and your spouse.

Business owners

Typically, life insurance plays a role in funding a business succession plan (e.g., funding a buy-sell agreement that prearranges the sale of a partner's interest upon death or disability). In this context, combining term and permanent insurance can be an efficient and economical solution. For example, individual term insurance policies can be purchased on the lives of each partner based on the current value of each partner's share of the business, with coverage until retirement age. Permanent policies can be purchased to provide additional funds with the expectation that the business' value will continue to grow. The permanent policies add flexibility, in terms of additional life insurance coverage, and cash value which can be accessed if needed (for example, to buy out a partner who retires before death).

Talk to an insurance professional

The insurance policy or policies that are right for you depend upon your financial circumstances. A life insurance professional can help you evaluate your insurance needs and recommend appropriate insurance products.

Personal liability insurance

Despite the common belief that only people with substantial wealth or assets are the targets of lawsuits, that's not necessarily the case. Accidents can happen anywhere, to anyone, and even people of modest means may be at risk. For example, here are some common situations that might result in a liability claim:

• Your dog escapes from the house and bites a delivery person
• A neighbor's child is hurt while jumping on your backyard trampoline
• Your vehicle broadsides another, injuring the driver

Unfortunately, if you're sued, your assets are potentially at stake--your savings, your investments, and in most states, even your home. Even if the claim is eventually proved groundless and you're not held liable for damages, the cost of mounting a defense can be high.

That's why personal liability insurance is so important. Not only does it cover any court awards you're required to pay as a result of damage or injury caused by you, your family members, or your pets, but it also covers your legal bills, up to policy limits.

You probably already have some coverage

Homeowners, renters, and auto policies all contain liability coverage, so you may already have a basic layer of protection. However, you may not have enough, especially if you have only the minimum required. For example, liability limits for homeowners insurance generally start at $100,000, while required minimum limits for auto insurance in most states range from $30,000 to $60,000. Often, you'll need far more liability coverage than this to adequately protect your assets.

Ask an insurance professional to review your liability limits and help you decide how much you need, based on factors such as your age, assets, income, and lifestyle.

If you need more coverage

What if you have the highest available coverage limits but you still need an additional layer of protection? Consider purchasing an excess liability policy, also called an umbrella liability policy. Because it offers higher coverage limits (often starting at $1 million) than basic personal liability insurance, an umbrella policy will cover you for larger losses.

You'll need to have a certain level of underlying liability coverage (generally between $100,000 and $500,000) in order to purchase an umbrella liability policy, because the umbrella coverage kicks in only after you've reached the limits of your underlying policy. For example, if you have an auto policy with a liability limit of $300,000 per accident and a $1 million umbrella policy, your auto policy would cover the first $300,000 of a $700,000 claim and your umbrella policy would cover the remaining $400,000.

Business and professional liability insurance

The widely publicized case of a dry-cleaning business that was sued for $54 million over a lost pair of pants illustrates the importance of business liability protection. Although the owners of the business prevailed in the lawsuit and were awarded court costs (not including attorney's fees), they did not have liability coverage, and they may never recover the tens of thousands of dollars they spent mounting a two-year defense against this lawsuit.

While businesses can't always prevent such liability claims, they can purchase coverage for the special risks they face. One option is commercial general liability insurance, which is often part of a business owners policy. Business umbrella liability policies that offer higher liability limits are also available.

However, some liability risks are unique to certain businesses or professions, so you may also need specialized coverage. For example, if you work in an occupation that is particularly vulnerable to professional liability (e.g., law, medicine, day care), you may also need a separate professional liability policy, usually called malpractice coverage or errors and omissions coverage. Many other types of specialized liability coverage are also available.

Talk to an insurance professional who can help you determine the types and amounts of liability coverage that are appropriate for your business or profession.