Does Life Insurance Cover Prison Inmates?

Can a prison inmate obtain life insurance? Do people lose life insurance coverage when they're incarcerated?

These questions crop up frequently on prisoner rights and family support websites, and for good reason. Nearly 7 million Americans -- roughly 3% of the U.S. adult population, or about 1 in every 34 U.S. adults -- were behind bars or on probation or parole at the end of 2011, according to the most recent data from the federal Bureau of Justice Statistics.

That translates to a lot of family members whose lives have been thrown into limbo by the incarceration of a breadwinner. Some inmates hope life insurance will provide financial protection for their spouse and children should they die behind bars; others seek merely to cover their own burial costs.

Unfortunately, prison barbed wire is one line that life insurers rarely cross.

Not a market that insurers want to capture

Experts say it's very difficult for an inmate to start a life insurance policy.

"We do not offer life insurance coverage to any incarcerated individual," says Janet Gillespie, a spokeswoman for Prudential individual life insurance. "Our underwriter feels this is industrywide."

So does Jack Dewald, president of Agency Services Inc., a life and health insurance brokerage in Memphis, Tenn., and a former chairman of the Life and Health Insurance Foundation for Education, a nonprofit consumer education group.

"I don't know of a single insurance company that would issue a policy to someone in prison, even those in a 'country club' or less restrictive prison," he says. "That's just not the kind of risk that the industry would take."

In fact, Dewald says it's easier for a combat-bound soldier to land life insurance than a prison inmate. "There are a couple of insurance companies that feel it's their civic duty to write active-duty military," he notes. Existing coverage may continue behind bars

While an inmate may not be able to find a company willing to offer new life insurance coverage, Dewald says those who entered prison with an individual policy already in place are guaranteed coverage as long as they pay their premiums and don't die while committing an intentional criminal act. However, those with group life coverage through an employer typically lose it when sentenced to prison.

"A group policy doesn't have an individual guarantee; it has a guarantee that's issued to the employer," he says. "If they go to prison, by definition their employment is terminated, so they're no longer eligible for all the benefits, including life insurance."

But a convict may be able to convert group coverage to an individual policy before entering prison.

"That is typically exercised when somebody is really sick and has run out of COBRA (extended group coverage under federal law) and can't acquire life insurance through normal means," Dewald says. "I suppose most of that could be converted, even if you were in prison."

Insuring inmates poses many challenges

Judith Hasenauer, a chartered life underwriter and principal at Blazzard & Hasenauer P.C., a Florida law firm that advises insurance companies, explains that life insurance underwriting assesses three main elements. An applicant's:

Health.    Financial situation.    Relationship to the beneficiary.

Prison presents problems on all three counts:

There's no easy way to conduct a health exam on a prisoner.    Inmates' access to their financial assets is typically restricted while in custody.    Imprisonment casts broad uncertainty over the motives of both the insured and their beneficiaries.

Throw in the inherent dangers associated with confinement, the uncertain mental health of the prison population and the "moral hazard" of insuring someone who already has run afoul of the law, and it's not hard to understand the industry's reluctance to insure prisoners.

"Many companies may just not go through the exercise of underwriting for prisoners," Hasenauer says.

Big-name inmates may find coverage

There are exceptions, especially among the rich and famous clientele served by Ted Tafaro, CEO of Exceptional Risk Advisors, a Mahwah, N.J., specialty insurer and Lloyd's of London underwriter.

"If you take a Bernie Madoff or a Martha Stewart, we may potentially be able to do something for them that would be very, very expensive and would probably be more along the lines of accidental death type of coverage," Tafaro says.

He adds that after Hollywood celebrities such as Lindsay Lohan and Robert Downey Jr. have done time, life insurance has helped the show go on through their parole or probation.

"That would be part of the risk-mitigation strategies we use that could involve how they get paid, monitoring by 'minders' who stay with them, and consistent substance testing," he says.

Even daredevils are preferable to inmates

But Tafaro admits he's far more comfortable insuring daredevils such as the world skydiving record-holder than someone behind bars.

"The high-risk element is something we can get our head around because it's not a moral issue; the guy wants to live and he wants the stunt to go well," he says. "With felons, you run up against that unknown moral factor. Life insurance is a privilege and not a right. Jail pretty much kills the opportunity to purchase coverage."

There is at least one alternative: A modest death benefit is available in participating states for a monthly membership of $9.99 to $12.99 from ProCon Membership Community, a West Palm Beach, Fla., resource for the families of inmates.