By Regina Waldroup, Life Quotes, Inc.

An adequate life insurance policy can give a family peace of mind in the wake of a death. For some families, insurance proceeds often are the only source of revenue for funeral and burial costs.

But what if your loved one dies in prison? Will the insurance company pay those benefits? And can an inmate obtain life insurance?

While not entirely impossible, obtaining a new, legitimate policy on someone incarcerated, or even a new parolee from prison, is no easy task. And insurance experts warn that consumers should take a hard look at outside-the-mainstream companies that offer insurance to families of inmates.

“There would be a lot of mechanical impediments to insuring an inmate,” says Eileen Trost, president of the Chicago Estate Planning Council, and a partner at the law firm Freeborn & Peters in Chicago. “Prisoners are not deprived of all rights, but how would an agent be able to do due diligence? Prisoners don’t have any money, so more than likely this would be a loved one trying to buy a policy.”

Jack Dewald, a wholesale distributor of life, disability and long-term care insurance, says people should be wary of companies that target prisoners.

“I don’t know of a single insurance company that would issue a policy on someone in prison,” says Dewald, immediate past chair of the Life and Health Insurance Foundation for Education (LIFE) board of directors. LIFE is a nonprofit organization dedicated to helping consumers make smart insurance decisions. “You typically purchase a life insurance policy to replace the income lost from a death. When someone is in prison, they may be making 20 cents a day making license plates. There is no lost income. They’re a moral hazard. Then there’s the true risk issue. Something could happen to you in prison.”

ProCon Membership is a West Palm Beach, Fla.-based association for those who have a loved one behind bars. The company has been in business for 30 years transporting loved ones to prisons, with a focus on facilities in Florida, New York, California and Texas.

Though not a  life insurance company, ProCon this year began offering death benefit insurance for the incarcerated loved ones of its members.

“The company  pays between $5,000 and $7,500 if an inmate dies,” says chairman Sal Tarantola.

So far, Tarantola says 95 inmates are enrolled in the insurance program.  “But no claims have been paid yet,” he says.

Initially, his company charged $99 for a membership, but Tarantolas says that fee has been waived indefinitely. To join, members pay a monthly fee ranging from $7.99 to $12.99. And from that revenue, Tarantola believes he can fund the insurance program. The program excludes inmates with pre-existing health conditions, such as cancer and HIV. Tarantolas concedes that he has launched a risky business, but he hopes it will succeed in the long-term.

“It’s like any other business. If I have to take a loss, I would,” he says. “God forbid there’s a riot in Attica. Then we would be in a world of trouble. If it got really bad, we would just discontinue it and not offer the service.”

While Dewald says he has never heard of ProCon, he suggests that consumers proceed with caution in this area. Mainstream insurance companies have stayed out of this area for a reason, he says.

“If there was a company that could write new policies on prisoners, they would be so deluged with applications that they better have some strong financials for the claim activity that would follow,” Dewald says.

Insurance options

Max Herr, a life insurance agent based in Pamona, Cal., says it’s possible for a prisoner to obtain final expense coverage, also known as burial insurance, from a traditional insurance company, as long as the inmate has the ability to sign the application. However, Herr says the company’s underwriting would still have to consent to insure the incarcerated person.

But what if a life insurance policy was purchased years before the person went to prison?

That’s the case for Marie, who asked that her full name not be used. Marie’s long-time boyfriend is currently serving 15 years in the Oakdale Federal Correctional Complex in Oakdale, La. He has a $50,000 life insurance policy that was purchased before they met, she says.  He’s had the policy for about 20 years, and he’s been incarcerated since October 2010.

“He’s in a low security facility,” explains Marie, who lives in central Illinois. “But you still are worried, because his life can still be threatened or something unforeseen can happen. Who’s going pay for him (his body) to come home (to Illinois) should something happen? That is a huge expense. And burial, too — that’s why I just paid a whole quarter of premiums.”

Marie is a frequent poster on the website PrisonTalk.com, a prisoner support community where family members and loved ones can share their stories and have their issues addressed by others in similar circumstances. Life insurance is one of their many concerns.

PrisonPolicy.org offers a Prison and Families Fact Sheet regarding families whose loved ones are incarcerated.

“It’s a huge thing. I’ve seen some people post that they had an existing policy on their loved one before they were incarcerated, and suddenly found out its now invalid,” Marie says. “That is not the case with my policy. I’ve read it a million times trying to find an exclusion and haven’t.”

Industry experts say assuming there was no fraud or deception in attaining the policy, there’s no reason why an insurer would not pay on an existing policy.

“Whether it’s (jailed Wall Street financier) Bernie Madoff or any other person with a policy in force prior to being convicted, the policy will remain in effect as long as the premiums are paid,” says Herr. “There is nothing that would cause or allow the insurance company to terminate the coverage. It  doesn’t matter if it’s a white collar crime or first degree murder with a lethal injection coming in 25 years.”

But that may not be the case if you’re covered under a group life insurance plan through your employer as part of your benefits package. With those plans, experts advise you to pay close attention to the exclusions and check with your employer’s human resources department. While you may be allowed to add your spouse or dependent children to the plan without answering any health questions, many stipulate that if that person is incarcerated at the time of his or her death, life insurers will not pay, and you will have paid all that premium for nothing.

As for getting life insurance once a person is released from prison, Herr says anyone on parole may apply for a policy, and if they meet the insurance company’s underwriting criteria in all other respects, they would likely be approved. However, he adds that some insurance companies automatically decline parolees who have felony convictions, and no state laws prohibit this as a uniform underwriting guideline as long as it is not discriminatory for some other reason.

“The recidivism rate is so high among parolees,” Dewald says. “Then there’s the fact that even a small violation could send them back to prison. So insurers usually postpone issuing a policy until the parole period is over.”

An inmate can also be named a beneficiary of a life insurance policy. But Herr adds that depending on the state or federal government, certain felonies can disqualify an inmate from receiving life insurance benefits.

“A disqualification can be connected to the length of the prison term,” Herr says. “Certainly, if the beneficiary is incarcerated because he or she committed or caused the unlawful homicidal death of the insured or had something to do with it, such as hiring the killer, all state laws require the disqualification of the beneficiary.”

If not otherwise disqualified, the proceeds would have to be held in some form of trust account until the beneficiary is released from custody, Herr says.

Can you go to jail over a lapsed life insurance policy?

Take, for example, the case of a New York man who decided to let he and his ex-wife’s life insurance policy lapse. An agreement that was issued in the divorce decree. The husband who earned an income of $500,000 a year, nearly escaped landing in jail because he did not pay the life insurance payments for his  spouse and children under a court order in the divorce settlement.  The Law Office of Louis L. Sternberg  wrote about a case that happened in June 2011, which was decided by the supreme court of Nassau County,  Long Island, N.Y.  The court gave the ex-husband the  option to either  serve time for a period of six months or  reinstate the $2 million  life insurance policy.  In addition to dodging his obligations to keep the life insurance policy active for his wife and children, he was ordered to pay his wife’s legal fees of $16,442.62 for taking him to court.

Private Healthcare for the Incarcerated?

As wards of the state, prisoners are supplied with virtually free health care. The state of California, for example, spends almost $15,000 a year per inmate for medical care. But some with loved ones locked up say they would pay for private medical care if the could.

“I have more horror stories than I care to think about,” says Marie from central Illinois. Her long-time boyfriend is currently serving 15 years in the Oakdale Federal Correctional Complex in Oakdale, La., and she’s not happy with the quality of health care he is receiving behind bars. (Marie asked that her full name not be used for this article.)

“He has an issue … but when he went to visit the physicians, he was told it was something else and to buy over-the-counter medicine for it,” Marie says. “This is a minor thing, but I would hate to think about what would happen if it was something major. They have a minor co-pay when go to see the doctor, but what kind of health care are they really getting? If I get crappy health care, I can go to a new doctor, he can’t.”

Marie says if she could, she would add her boyfriend to her insurance policy.

“I would be more than willing to pay the extra premium for the next ten years to make sure he has insurance,” she says.

Illinois Department of Corrections Spokeswoman Sharyn Elman says most prisoners won’t block an inmate from having private insurance, but she asks why would they want it.

“We wouldn’t stop them from having private health insurance if they want it,” Elman says. “But we’ve never seen it happen. Are they going to have their private doctors come to the prison? Most private doctors don’t want to come here.”

This article was originally published by Life Quotes, Inc.