Can you get life insurance while unemployed?

Life as a professional is looking a little more uncertain for many of us these days.

If you’ve recently lost a job, been furloughed, or are facing unemployment in the midst of the pandemic, you’re unfortunately part of a large group of would-be workers across the U.S. Fortunately, unemployment levels have come down from record highs at the height of the pandemic, when about 15% of all working Americans were looking for work.

Still, higher-than-average unemployment is lingering. As of April 2021, about 6% of working Americans were searching for a job – 2.5 percentage points higher than pre-pandemic levels in February 2020.

Even if you’re fortunate enough to be employed, you might be concerned about your long-term job prospects.

And beyond the current effects of COVID-19, it’s becoming less common to stay in the same role for long stretches of time, the way your parents or grandparents might have done. One in five millennials will switch jobs over the next year and six in 10 say they’re open to new job opportunities, according to a Gallup survey. Add up all those job changes, and it’s likely you’ll find yourself with an employment gap – even a short-term one – at some point in your career.

At the same time, the pandemic has been a firm reminder of the importance of preparing financially for worst-case scenarios. Life insurance is one key way to do just that. By investing a little each month, your family can potentially access a much larger payout if something were ever to happen to you. But can you even apply for life insurance for the unemployed? What if you’re concerned about losing your job in the near future?

The short answer is yes – here’s what to know first.

Do you have to be employed to get life insurance?

Don’t put off applying for a policy after losing your job. With most insurance companies, recent unemployment is unlikely to raise a red flag when applying for life insurance coverage.

If you’ve been out of the workforce long-term, whether to pursue a degree or raise your kids, your insurance company might ask more questions. The Department of Labor defines long-term unemployment as 27 weeks or longer, although each life insurance company will use its own guidelines to define long-term unemployment. Ultimately, they’ll want to make sure that you can afford your insurance premiums and that the amount of insurance you’re buying makes sense for your situation.

Left the workforce to stay home with the kids? Life insurance coverage is also important for stay-at-home parents. Tasks like childcare and managing the house all add up over time –  one survey pegged the cost of replacing a stay-at-home parent’s labor at more than $178,000 a year. If you died, your partner would need a way to cover all the services you provide to your family and household. A life insurance policy payout can help your partner cover costs and even take time off work as needed if the worst happens to you.

Should I buy life insurance if I’m unemployed?

Ask yourself: Do you have people depending on you financially? If so, you need life insurance, regardless of your employment status.

Many people buy a life insurance policy during or after a big milestone moment, like marriage, buying a house, having kids, or even a birthday that ends in a “0.” Life goes on, even when you’re unemployed, and a policy can help protect your loved ones in the face of whatever’s next.

Others aren’t covered yet because the grind of daily life keeps getting in the way. If that sounds like you, there’s no time like the present, whether or not you’re employed.

Ultimately, you should buy life insurance for unemployed for the same reasons you buy life insurance when employed: to give your family a financial safety net in case the worst happens.

In general, it’s best to buy sooner rather than later. Not convinced? Here are a few other things to consider:

• Life insurance is more affordable than you might think… Dollar for dollar, life insurance is one of the most affordable ways to provide your family with significant financial protection, especially if you buy term life insurance. It would be difficult for most people to build enough savings to cover their income even for a year. Life insurance lets you tap into multiple times that amount, without the need to save it yourself. And it’s budget-friendly: According to a LIMRA 2021 study, people consistently overestimate the cost of term life insurance. More than half of Americans think a $250,000, 20-year term life insurance policy for a healthy 30-year-old costs more than $500 per year, which is about three times more than it really costs. In reality, a 30-year-old healthy woman could buy a $250,000, 20-year term life policy from eFinancial starting around $19 per month, about the cost of a family-size pizza. Life insurance is fairly easy to fit into even the tightest of budgets, but it provides big protection if needed.
• …But it gets more expensive the longer you wait. Those low rates don’t last forever. One of the biggest determinants of life insurance prices is age. In general, rates go up about 8% to 10% per year with every year as you get older. That’s because younger applicants tend to be less of a risk for insurers, since they have a longer life expectancy. This means that a 40-year-old could end up paying hundreds or thousands of dollars more over the life of a policy than a 30-year-old.  If you put off buying life insurance, you also run the risk of developing a health condition down the road that could prevent you from getting covered. Once you lock in your rates, they’re guaranteed for the full length of your policy, even if you develop health problems later.

Why group life insurance often isn’t enough

Many people rely on life insurance through their employer, but a job loss can put that protection at risk. Overall, there’s been a decline over the years in the number of employers offering group life benefits. According to a 2021 industry study, fewer than half (48%) of insured people have some form of group life insurance today.

While many companies still offer life insurance at low or even no cost to their workers, that protection often comes up short for families. If you’re already dealing with a job loss, you are likely aware of a big limitation of group life insurance: You can’t take it with you when you change or lose jobs. Given that people are changing jobs more than ever and unemployment levels are higher than normal these days, relying only on group coverage means you’re at risk of suddenly losing that protection. And remember, if you have to buy individual coverage to replace a group plan, it gets more expensive the longer you wait.

The coverage amounts also tend to be less than needed, which can leave your family unprotected. Many plans top out at three to four times your annual salary, much less than most experts recommend. According to industry group LIMRA, people with both individual and group coverage can replace 3.6 years of income on average, while people with only group coverage just have enough to replace 2.6 years of income.

Whether you’ve lost your coverage due to a job loss, you’re simply between jobs, or you’re thinking about making a job move, be careful about relying on your future employer for life insurance benefits. Locking in an individual life insurance policy now can help you ensure you have protection that lasts, no matter where your career takes you.

What’s the best life insurance for someone who’s unemployed?

Term life insurance is the way to go for most people, but especially the budget-conscious. With term life, your policy is in effect for a particular length of time, usually 10, 15, 20, or 30 years. If you die during the life of the policy, your beneficiary receives a tax-free cash payout they can use for whatever they like. If the term expires while you’re still alive, the coverage stops and you can choose to renew, buy a new policy, or simply let your coverage end.

Term life is just-in-case coverage that you buy and hope you won’t need to use later, just like auto or home insurance. That’s why it’s so affordable. You can also match the term length to your family’s needs. If your kids will be out of the house and your mortgage will be paid off in 20 years, for example, a 20-year policy can carry you through to that big financial milestone.

When shopping for life insurance coverage options, make sure to buy term life coverage for at least as long as your financial obligations will last. Round up if needed – for example, if your mortgage will be paid off in 13 years, consider a 15-year term to provide a little extra cushion.

Also, keep in mind that there are lots of insurance companies out there, and they all have a slightly different method for evaluating your application. There are a number of factors that go into your life insurance premiums, or the cost you will pay for life insurance, including:

• Age
• Health
• Height and weight
• Nicotine or any drug use
• Family medical history
• Your occupation and hobbies
• Driving record
• Other lifestyle factors, like foreign travel or financial history

Some insurance companies might give you a more favorable rate than others, even with the exact same info on your application. Working with an agency like eFinancial can help. Our agents work with multiple reputable companies and know which ones will be the best fit for your needs. They can help you find a policy that provides the right protection at an affordable price.

How much coverage can I buy if I’m unemployed?

You might have heard general rules of thumb, like “Buy seven to 10 times your income in life insurance.” But what if you have no current income? While those estimates can provide a good starting point, in reality, the ideal amount of coverage is different for everyone.

Your own coverage amount should be based on your current and future expenses, along with any savings or other assets. Think about everything your family needs to cover on a daily, monthly, and long-term basis. That includes things like:

• Day-to-day expenses. These can include bills, groceries, utilities, Target runs, and more.

• Your mortgage. This is often the single biggest bill in a family’s budget. You should think about the monthly cost and the time left on the mortgage. If you’re in a rental, factor in those payments instead.

• Debts. If you have outstanding student loans, credit cards, or a car payment, then life insurance can help make sure those costs don’t saddle your family financially later. About 51% of Americans with credit card debt have added to it during COVID-19.

• Savings. Life insurance can allow your family to build a bigger nest egg. This is especially important if you’ve had to dip into savings because of a job loss. About 46 million Americans, 14% of all Americans, completely wiped out their emergency savings during COVID-19.

• College fund. You should consider the number of children you have and the type of schooling (for example, earmark more for private vs. public institutions).

• Funeral expenses. The average funeral can cost $10,000 or more. Life insurance gives your family a way to cover those bills, along with any end-of-life medical expenses and other debts.
• Other financial goals. The payout from a policy comes with no strings attached, so your family can use it to reach the financial goals you’ve set together, from giving the kids a trip to Disneyworld to upgrading to a bigger home.

The right number is different for everyone. Our coverage calculator can help you find an amount that makes sense for you and your family.

When considering life insurance for unemployed, an insurance company will look at your income history to advise you on the best coverage amount and determine your eligibility. You may also need to answer additional questions during the application process about how much your partner makes, their income history, any other life insurance coverage, and when you can expect to return to work.

The goal of life insurance is to help people replace their wealth, so they’ll confirm the amount is appropriate given your past salary history and future earning potential. They will also want to confirm you have enough income to cover your life insurance premiums for the policy.

In some cases, you can qualify for the same amount of coverage as your employed partner, while other companies will cap your coverage at a specific amount. In general, most providers have become more lenient with life insurance applicants experiencing temporary unemployment during COVID-19. eFinancial can help match you with the right insurance company and the right products based on your situation.

Should I buy life insurance if I’m concerned about losing my job?

The need for life insurance doesn’t change based on your job situation. If you need life insurance coverage, it’s best to buy it sooner rather than later.

The ongoing pandemic and related financial concerns are prompting more people to consider life insurance. According to a 2021 LIMRA study, one in three people say they’re more likely to buy because of the pandemic. This is tied to rising financial concerns, LIMRA reports, which have grown about 20% among survey respondents over the past two years. One in three people worry about paying bills, and concerns have also risen about saving and health expenses.

Purchasing life insurance while you’re still employed allows you to lock in coverage that can help ease some of these worries – and to sidestep extra questions about your job and work history that can come up with a job loss. Also, once you have life insurance in place, a change in employment won’t affect your policy as long as you keep paying your insurance premiums.

What if I can’t pay my life insurance premiums anymore?

Job loss or not, a financial setback might mean that you can no longer keep up with payments. If this happens, it’s important that you’re upfront with your insurer.

• Reduce your coverage amount. Some life insurance is often better than no coverage. If you’re in a tough spot financially and worried about lapsing your coverage, you may be able to reduce your coverage amount. This can help lower your premiums. Keep in mind that it’s easier to lower than raise your coverage level, so proceed carefully. If you need more coverage later, you’ll need to reapply and will likely have to pay higher rates based on your current age, costing you more money in the long run.
• Change your payment schedule. If you’re struggling with making your payments, talk to your insurance company. Some companies offer semi-annual or annual payment options, which can give you a longer runway to get the necessary funds together. Many insurers also offer a discount for paying all at once for the year. They also might be able to offer a grace period for payments, especially during COVID-19.
• Ask for help. Another option? Talk to your loved ones for help. Since they’re the ones who will benefit from the policy, they might be willing to help cover the costs so you can keep it active now.

It helps to start by choosing an affordable policy that doesn’t stretch you financially. Term life is an affordable option and often the best choice for coverage. Our agents can help you compare term life plans to find the right fit for your unique needs and budget.

Still have questions about getting covered without a job?

Our team at eFinancial is here to answer your questions and help you find affordable financial security for your family. Get in touch with us to speak to one of our agents today.

Article Sources:

1. Congressional Research Service. “Unemployment Rates During the COVID-19 Pandemic, https://fas.org/sgp/crs/misc/R46554.pdf”
2. Bureau of Labor Statistics. “The Employment Situation — May 2024, https://www.bls.gov/news.release/pdf/empsit.pdf”
3. Gallup. “Millennials: The Job-Hopping Generation, https://www.gallup.com/workplace/231587/millennials-job-hopping-generation.aspx”
4. Bureau of Labor Statistics. “Long-term unemployed account for 20.3 percent of unemployed in March 2018, down from a year earlier, https://www.bls.gov/opub/ted/2018/long-term-unemployed-account-for-20-3-percent-of-unemployed-in-march-2018-down-from-a-year-earlier.htm”
5. Salary.com. “How Much Is a Mother Really Worth?, How Much Is a Mother Really Worth?”
6. LIMRA. “2021 Insurance Barometer Study Reveals Common Misconceptions That Prevent Americans from Getting Life Insurance They Know They Need, https://www.limra.com/en/newsroom/news-releases/2021/2021-insurance-barometer-study-reveals-common-misconceptions-that-prevent-americans-from-getting-life-insurance-they-know-they-need/”
7. LIMRA. ““Life Insurance Ownership in Focus – U.S. Household Trends (2016)”