Obtaining a life insurance policy with a felony conviction can be challenging. Certain felony crimes will likely rule out applicants, and some felonies may cause higher premiums. An applicant's risk to a life insurance company varies from insurer to insurer. However, there are some traditional guidelines most insurance companies use when evaluating the risk of an applicant with a felony.
Life insurance is a form of risk management; applicants with a felony conviction are typically considered a high risk to the insurance company and may be turned down for coverage or pay higher premiums.
A felon is considered high risk due to the percentage of releasees that are rearrested and those with chronic illnesses.
Applicants convicted of a violent crime are less likely to be approved for a life insurance policy. Time is a usual factor during underwriting for applicants convicted of non-violent crimes.
There are types of life insurance policies available that applicants cannot be turned down for, such as guaranteed acceptance life insurance and accidental death and dismemberment.
Although it may be more challenging to qualify for a life insurance policy with a felony conviction, options and conditions exist to help widen the path for a successful outcome.
Insurance is a form of financial protection for unexpected and extreme circumstances, such as theft, natural catastrophes, and the loss of life. Insurance companies must evaluate the probability that your home may teeter off a cliff before determining if they should issue a policy that financially protects the loss of your home and at what cost.
This is why it is more difficult for a person with a felony conviction to obtain life insurance. Individuals with a criminal history are considered high risk due to hazardous behavior and environmental conditions that increase the chances of the loss of life.
When applying for any type of risk management policy, including life insurance, your application must go through the underwriting process. During underwriting, insurance companies weigh numerous factors and rely on different sources of information to determine whether to accept, decline, or rate a risk.
What is risk management?
How we handle the possibility of loss is called risk management. We can deal with the chances of the unexpected occurring in numerous ways. These include risk avoidance, risk reduction, risk retention, risk sharing, and risk transfer.
You may decide to avoid risks by simply not participating in certain activities. For example, if you are afraid of drowning, you can prevent it by staying out of water. You may retain a risk by using your funds to pay for the loss. Risk sharing is when a group of individuals chip in and compensate for the loss of a group member. Risk transfer is the basis of insurance, which transfers the risk to a third party.
In life insurance, loss is the unplanned reduction of economic value. A peril is an immediate cause of loss, such as death, accidental injuries, disability, and illness. Insurance policies are defined by their covered perils. Disability insurance provides funds should the insured become disabled, and life insurance pays a benefit amount to beneficiaries upon the insured's passing.
Life insurance companies employ underwriters to work with applicants to determine if they are insurable. The underwriters evaluate the chance of the loss of life. Underwriters consider the applicant's exposure to loss and hazards, which are conditions that raise the risk.
Why does a criminal record matter to life insurance companies?
Life insurance underwriters evaluate a life insurance applicant's exposure, which is the state of being subject to a loss and hazards that increase the probability or the severity of the loss. Life insurance has three types of hazards: moral, morale, and physical.
Moral hazards are habits that raise the chance of loss, like smoking, alcoholism, and drug addiction. Morale hazards are issues that arise from a state of mind, indifference, or attitude. For example, a person may never lock their front door because they have the attitude that they won't be a victim of vandals or are indifferent to it. A physical hazard is a condition that raises the chance of loss, like high blood pressure.
Recidivism is the statistical percentage of released prisoners who are rearrested. According to the National Institute of Justice, recidivism rates in the United States are 44% within a year of release. The United States has one of the highest recidivism rates in the world.
According to the National Library of Medicine, prisoners and released prisoners suffer from chronic medical conditions. They report that "24% of all STIs, 35% of tuberculosis, 29% of Hepatitis C, 17% of AIDS, 13% of HIV, and 15% of Hepatitis B is present in the releasee population."
For underwriters to perform their jobs correctly, the likelihood of released prisoners being rearrested and the exposures and hazards of prisoners and ex-prisoners cannot be ignored. A felony offense increases the chances that the life insurance applicant will encounter the covered risk, and the insurance company must pay the benefit amount. This affects their ability to obtain a life insurance policy.
What happens during the underwriting process?
Underwriting is an insurance company's process to determine if a proposed risk should be accepted, rejected, or rated. Underwriters use a judgment method or numerical rating system. Under the judgment method, underwriters use only the application and their judgment to determine if the risk is acceptable.
Underwriters who use the numerical rating system use numerical credits for favorable aspects, such as perfect health, and debits for negative influences like smoking. The credits are added together, the debits subtracted, and the resulting number is added to 100 or the standard mortality rate. Typically, numbers between 75 and 125 are considered a standard risk.
Standard risks are considered acceptable to the insurer and receive a standard premium rate. Preferred risks, applicants in exceptional health, and those with little to no family history of illness are assigned lower premium rates. Substandard risks are a high risk to insurers and pay higher rates. Life insurance applicants with a felony conviction, if accepted, are likely to be considered substandard risks.
Life insurance companies offering express underwriting will still conduct a background check that includes a credit check, DMV report, prescription drug claims, and a criminal history check.
A criminal record and life insurance
Every life insurance company has its own set of guidelines when determining risks. An acceptable risk to one company may not be acceptable to another. How a life insurance company assigns significance to a felony varies from company to company.
Life insurance applicants must be truthful on their applications. Lying could result in coverage denial; the company may find the behavior leaves them susceptible to fraud. Lying on your application could also result in the benefit not being paid if you are issued a policy.
Most life insurance companies will deny an applicant traditional life insurance coverage, like term or whole life if they have been convicted of a violent crime. You probably will not be approved for a life insurance policy for the following convictions:
- Child molestation
- Drug trafficking
- Conspiracy to commit the offenses above
If convicted of a drug-related crime, you may still be approved for life insurance coverage. Insurers consider time when evaluating the risk of these applicants. Factors include:
- The time that has passed since the crime occurred
- Length of time served in prison
- How long the parole or probation period lasts
- How much time has passed since parole or probation
- The amount of time that has passed since release
Time is a factor in underwriters' evaluation of applicants who have been convicted of a drug-related crime to determine the chances of recidivism.
If you are facing felony charges, you cannot obtain life insurance until a judgment has been made. You may still be approved for a life insurance policy if you were convicted of a misdemeanor without impacting your premiums.
Although life insurance companies will not insure those currently incarcerated, if you are convicted of a crime and sent to prison with an existing life insurance policy, the policy will remain in force as long as the premiums are paid.
Best life insurance options with a felony
Certain policies are good options if you have been convicted of a felony and cannot obtain traditional life insurance. These include guaranteed acceptance life insurance, Accidental death and dismemberment (AD&D) insurance, and group coverage.
Guaranteed acceptance life insurance is a policy that doesn't deny coverage due to health conditions, age, or criminal convictions. The drawbacks to these policies are high premiums, low benefit amounts, and the death benefit is graded.
A graded death benefit is a waiting period, usually two years, that the insured must have the policy to pay out. If the insured passes away during the waiting period, the policy will pay a percentage of the death benefit, which increases over time.
An AD&D life insurance policy is typically added as a rider to an existing traditional life insurance policy or can be purchased independently. An AD&D policy will only pay a death benefit if the insured passes due to an accident or is dismembered.
Group policies are usually obtained through an employer but may cover any groups as long as they are unrelated, except for their association with the group. When ,an employer offers group life insurance the majority of the employees must be covered under the plan.
Obtaining a life insurance policy with a felony conviction may be more difficult or expensive. But, circumstances like the type of crime and the time that has passed since conviction and release are evaluated during underwriting and help to widen the possibilities. Feel free to share your experiences in the comments, and read more about life insurance policies here on Healthnews.
Why is an applicant with a felony a high risk to insurance companies?
Released prisoners in the United States have a high rate of rearrests and chronic illnesses; they are more likely to pass away, resulting in a death benefit being paid out and fewer premiums paid.
Can a person with a felony get traditional life insurance?
Yes, different insurers use different criteria when evaluating the significance of risks. An applicant with a felony can obtain a traditional term or whole life insurance policy but will probably pay higher premiums.
Are there nontraditional policies that will cover people with a felony?
Yes, guaranteed acceptance life insurance, accidental death and dismemberment life insurance, and a group life insurance policy will cover individuals with a felony.
- National Library of Medicine. Infectious diseases and the Criminal Justice System: A Public Perspective.
- National Institute of Justice. Measuring Recidivism.
- USA Today. How life insurers get your best kept secrets.