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Financial Planning - Life Insurance Alternatives

Financial Planning - Life Insurance Alternatives

September 06, 2023

What to do when can do when you cannot purchase life insurance

Are you uninsurable? Have you applied for life insurance and been declined, or you are much older and purchasing a policy is outside of your means? If so, this article is for you.

There are many reasons an insurance company can decline to offer coverage for life insurance. Perhaps you have a chronic ongoing condition or recent health issue that is preventing you from purchasing life insurance; or you haven’t completed recommended medical tests or treatments prescribed by one a medical professional. Lastly, there could be something in your medical file that requires more information, testing or time to pass before an insurance company will consider making you an offer.

If you are applying online or working with a captive insurance agent (i.e. Northwestern Mutual, State Farm, Mass Mutual) and having difficulty getting a life insurance offer, be sure to reach out to us for assistance.  We have extensive experience working with difficult to place life insurance cases. We know the providers that specialize in offering life insurance to individuals with complex medical conditions.  As well as extensive medical histories. These companies do not run TV commercials or sponsor NCAA Football games.  The chances of finding them on your own are fairly low even in the age of Google, Alexa and Siri.

Creative ideas to get life insurance coverage or a death benefit 

Check your employee benefits. It is common for employers to offer group life insurance. Sometimes they offer $50,000 in life insurance per employee as part of your compensation. Sometimes it is more. Review your benefits, as group issued life insurance typically has little or no underwriting. If you cannot get coverage on your own, this can be a way to get more coverage in place.  Be sure to check or ask during open enrollment.  

Like all group insurance offerings, the devil is in the details, however there are compelling offers. We have seen clients have the ability to buy as high as 3 times to 10 times annual earnings with little or no underwriting.

Guaranteed Issue Life Insurance

There are a few life insurance companies that offer guaranteed issue policies to anyone. The premiums are higher, and benefits are much lower than traditional life insurance offers. These policies might also have a requirement you live a minimum of 2 years to pay out the benefit and other restrictions.  If you do not live the minimum time required, some companies will simply return your premium at death or return premiums paid plus interest.  

Click Here to Schedule a life insurance review meeting today. 

Mortgage Life Insurance

It is common to get solicited after getting a mortgage or refinancing a mortgage to purchase a life insurance policy that will pay off your mortgage at death. Similar to guaranteed issue, these policies are sold by direct mail and other means as an ancillary offering. Review and evaluate the offer as they may offer coverage with little or no underwriting. 

Annuity with Death Benefit Riders

Annuity contracts can be built to meet several financial planning goals and strategies. One of those is to provide a death benefit. There are annuities that include enhanced death benefits or growing death benefits that can act as a life insurance alternative for those who cannot get life insurance or want to further protect money earmarked to heirs and beneficiaries.

Return of premium annuities. There are annuities with riders that will pay beneficiaries the contract value of an annuity or the total amount of premiums paid by the purchaser. Whichever is higher.

    1. Example: you purchase a variable annuity for $100,000 and the contract value increases from a rise in the value of the investments to $150,000. If the purchaser passes away the contract value is paid to the beneficiaries. In this example $150,000.
    2. Example #2: you purchase a variable annuity for $100,000 and the contract value falls from poor investment returns to $80,000. If the purchaser passes away the contract value is paid to the beneficiary would be $100,000.

This is an example of how you can use an insurance company to manage risk and transfer that risk to the insurance company for the benefit of a planned wealth transfer.

Annuities with a focus on Death Benefit. There are annuities you can purchase that offer a death benefit that increases annually. Annuities of this nature can provide an alternative way to create or capture a growing death benefit.

    1. Example: you purchase an annuity for $100,000 with an annual guaranteed step-up in death benefit of 6% per year compounded.
      1. After 10 years, the value increases to $179,085*.
      2. After 20 years the death benefit would grow to $320,714*.

Note: annuities of this nature are typically not good at providing any other meaningful benefits to a financial plan. Choosing an annuity of this type could have other drawbacks and benefits. Be sure to work with your financial planner to ensure it is creating enough value vs other market solutions.

Other considerations, benefits and limitations

  1. When purchasing an annuity there are no contribution limits for non-qualified annuities by law. Limits will vary from insurance company to insurance company. There are limits to the amount you can put into an annuity that is qualified.
  2. Annuities have fees that can vary greatly, depending on contract selection, options, and individual contract choices. Be sure to understand the benefit of the annuity specific to your plan and the fee for those benefits.
  3. Annuities tend to have surrender charges and can limit investor liquidity or access to stated value. Be sure to review and understand these limitations and how they could impact your liquidity strategy and financial plan.

Click here to schedule a meeting to discuss your need or interest in life insurance alternatives.

Where else can I read up on annuities?  

Don’t follow the crowd. Depending on your situation, needs and goals for a life insurance alternative an annuity may or may not create value for your financial plan. We recommend working with a certified financial planner (CFP) to evaluate your options and see if an annuity creates value for your situation.


Below are a few articles and resources that can help you understand how to think about annuities in a more personal context.

Alliance for Lifetime Income

Immediate vs. Deferred Annuities

Variable Annuities  

Tax-Deferred Growth


Cash Flow Based Financial Planning with Sterling Edge Financial 

We provide current and ongoing financial advice by way of Cash Flow Based Financial Planning. Our financial planning recommendations, strategies and solutions are provided on an individual basis to our client’s specific opportunities, constrains, challenges, personal values, financial behavior, financial capacity and needs.  

Our mission is to empower our clients to make more informed financial decisions.  We know our clients have hundreds of financial questions, concerns and ideas that warrant detailed discussion, clarification, examination, discovery and evaluation before a worthy and valuable recommendation or strategy can be considered or proposed. 

If you are not a client of Sterling Edge Financial and would like to learn more, schedule an initial consultation or complete a Financial Wellness Survey today.