Life Insurance for People with Disabilities

If you are disabled you can get life insurance but it may affect any social services you participate in.

Author: Attorney Lonnie Roach

Life insurance protects family and loved ones in the event a person passes away, but people with disabilities often face challenges when applying for coverage with insurance providers.

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Contrary to popular belief, if you are disabled, you are not necessarily ineligible for life insurance. There are companies which specialize in plans specifically designed for the disabled but they may affect any social services you participate in.

Contrary to popular belief, if you are disabled, you are not necessarily ineligible for life insurance.

Disabled people can often purchase standard life insurance policies or high-risk plans tailored to disabled people, and there are companies which specialize in plans specifically designed for the disabled.

The Americans With Disabilities Act (ADA) states that disabled people cannot be denied certain services such as life insurance, but because a disability may affect a person’s life expectancy, insurance companies are allowed to take into consideration a person’s disability when deciding which plans they may be eligible for and determining the premium price.

Though each company evaluates an individual differently, insurance companies will consider your overall health and how your disability impacts your life, in addition to your income, lifestyle, and health history. If a disability doesn’t affect your life expectancy, it may not increase the insurance premium.

If you have been denied life insurance benefits don’t give up! Contact an insurance lawyer at 512-454-4000 for a free consultation and get the benefits you deserve.

There are basically two types of life insurance – term life insurance and whole life insurance.

Term life insurance provides coverage for a limited time period. You choose the term period at the time of purchase, usually 10, 20, or 30 years. Both the payout and premium stay the same throughout the term. Whole life insurance provides lifelong coverage and has a cash value (the amount of money you would receive from the life insurance company if you canceled your policy) which increases at a guaranteed rate and is tax deferred. Like term insurance, the premium remains the same.

If you have a high-risk disability, one in which your disability places you more at risk to pass away than someone who does not have the same disability, there are several options for insurance to consider:

•   Guaranteed-issue life insurance. This is a whole-life policy that is more expensive and limits the death benefit the beneficiary receives, but does not require a medical exam. Coverage is usually limited to smaller face amounts of $50,000, $25,000 or $15,000 depending on the insurance provider. You must also survive at least two years or the policy does not pay out a claim.
•    Impaired-risk life insurance. This insurance is for people whose disability negatively affects their overall health and life expectancy.
•   Group or Employer life insurance. This insurance is purchased through an employer or an organization a disabled person belongs to, such as a credit union. The face value is restricted, but it is affordable and employers often pay the premiums.
•   Survivorship policy. This type of policy names two joint insured people and pays a claim when both parties pass away. It is most often purchased by a husband and wife who want to provide for their children in the event they both pass away before the children become financially independent.
•   Veterans. Disabled veterans qualify for life insurance through the Department of Veterans Affairs. You must be in good health despite your disability, your disability must be caused by military service. and you must apply within two years of your disability being recognized by the Department.

Can you have life insurance while on SSI?

Because SSI eligibility is based on your current assets and resources as well as your ability to earn an income, any life insurance policies you own will be considered when your SSI application is processed. Each type of life insurance policy is treated differently for the purposes of determining your eligibility to collect SSI benefits. Term life insurance policies have no present value and do not accumulate equity. The only value held by a term life insurance policy comes when the insured person dies, at which time the policy proceeds are paid to the beneficiaries so term life insurance is not considered in calculating SSI benefits. Whole life insurance holds a cash surrender value that will be counted as a resource.

Can life insurance affect your Medicaid eligibility?

All Medicaid applications ask if the applicant owns life insurance and requires full policy details. Failure to disclose this information is considered fraud. In most states, to qualify for Medicaid, you cannot hold more than $2,000 in assets. Term life insurance does not have a cash value and is not considered an asset. On the other hand, whole life insurance does have a cash value and you can borrow money against the account or surrender the policy for cash.

If you have a life insurance policy that may disqualify you from Medicaid here are some options to consider:

•    Surrender the policy and spend down the cash value.
•   Transfer ownership of the policy to your spouse or to a special needs trust.
•   Transfer the policy to a funeral home to pay for funeral expenses which are an exempt asset.

Life insurance and how it affects Medicaid and Social Security Income is complicated, so be sure to consult an attorney when considering your decision.

If you are disabled and considering purchasing a life insurance policy, here are some guidelines:

•   Decide whether term life or whole life insurance is best for you.
•   If your disability is not life threatening, compare quotes from different companies.
•    If your disability is considered high risk, such as obesity, heart disease, or diabetes, consider working with a life insurance agent that has experience with your disability.
•   Be forthcoming about your medical condition and be prepared to show you are following your doctor’s recommendations and you have no major complications.

Whether you are purchasing life insurance or you already have life insurance through your employer or another organization, there are two riders to life insurance policies you should be aware of.

A “Waiver of Premium Rider” included in some policies pays your life insurance premiums if you are partially or fully disabled. This benefit fills an important gap if you become disabled and can no longer afford to pay for premiums, insuring coverage when you may need it most. A “Disability Income Rider” pays a benefit as well as a premium. If your policy includes this rider and you become disabled, your life insurance will provide an income for you. Also, you can own a life insurance policy with this rider in addition to disability insurance. If you have life insurance prior to becoming disabled, check to see if you have either of these riders. If you became disabled before your life insurance policy was issued and these riders are not included, they cannot be added.

If you have employer-provided LTD coverage, then it’s likely that you have an ERISA-governed life insurance policy as well.

Typically, your life insurance will continue with premiums waived while you are considered disabled. The denial of LTD benefits, however, will often trigger a denial of the premium waiver for the life insurance policy as well.

Some people don’t worry about the premium waiver because they’re focused on the LTD claim.

This is a mistake. If your disability is due to a chronic medical condition, as so many are, then you may find it difficult to find replacement life insurance when you lose your employer-provided coverage. Worse yet, if your chronic condition results in your death, then your loved ones may find themselves with no benefits just when they need them most.
If your premium waiver claim is denied, you must appeal it within 180 days, just like an LTD claim. When Bemis, Roach & Reed Partner Lonnie Roach submits an LTD appeal for a client, he typically submits an appeal of the denial of a premium waiver claim at the same time. If the LTD appeal is denied and he has to file a lawsuit, the premium waiver is included in the lawsuit filing. Usually, when an LTD appeal is successful, the premium waiver appeal is also granted. If no premium waiver appeal is included, however, the life insurance coverage will likely end and can never be reinstated. Since this is the only life insurance many disabled people will qualify for, it is crucial that the coverage be protected by filing a timely appeal.

Author: Attorney Lonnie Roach has been practicing law for over 29 years. He is Superlawyers rated by Thomson Reuters and is Top AV Preeminent® and Client Champion rated by Martindale Hubbell. Through his extensive litigation Mr. Roach obtained board certifications from the Texas Board of Legal Specialization. Lonnie is admitted to practice in the United States District Court – all Texas Districts and the U.S. Court of Appeals, Fifth Circuit. Highly experienced in Long Term Disability denials and appeals governed by the “ERISA” Mr. Roach is a member of the Texas Trial Lawyers Association, Austin Bar Association, and is a past the director of the Capital Area Trial Lawyers Association (Director 1999-2005) Mr. Roach and all the members of Bemis, Roach & Reed have been active participants in the Travis County Lawyer referral service.