If you need life insurance coverage, but can’t qualify due to the condition of your health – or you simply don’t want to submit to the battery of health-related questions and tests normally required with typical life insurance policies, you do have an option. It’s called guaranteed issue life insurance.
What is it, and why aren’t you required to qualify based on your health?
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What Does Guaranteed Issue Life Insurance Mean?
Normally when you apply for a life insurance policy, you’ll be required to answer a long list of health-related questions, and even submit to a medical exam. If you’re in excellent, good, or even fair health, this will usually work well for you. But what if you aren’t?
There are millions of people with a variety of health conditions that will prevent them from getting conventional life insurance policies. That’s why guaranteed issue life insurance was invented.
Simply put, guaranteed issue life insurance is exactly what the name implies – it’s a policy issued without any underwriting.
On the surface, that’s a crazy idea, especially when you consider that the insurance industry is all about insuring against (or around) risk. But guaranteed issue life insurance isn’t typical life insurance, although it’s become very common.
Basically, you fill out a brief application, pay your premium, get your policy, and be on your way. That makes it a good choice for anyone with a serious health condition, or an abnormal fear of submitting to the health-related scrutiny that attends most insurance policies.
How Does Guaranteed Issue Life Insurance Work?
Guaranteed issue life insurance is a whole life insurance policy. That means it’s permanent insurance, with a fixed death benefit and fixed premium. This is especially important for someone with a chronic health condition, whose needs may not be well served by a term policy with its certain expiration date, higher future premiums, even the possibility of nonrenewal.
It often goes by a variety of names, such as burial insurance, final expense insurance, or guaranteed acceptance life insurance. Whatever the given name, it’s all guaranteed issue life insurance.
Once again, when you apply for guaranteed issue life insurance policy, you’re not asked any health-related questions, and you won’t have to submit to a medical exam.
As a whole life insurance policy, it will accumulate cash value. That will add an investment component to the insurance coverage. The cash value will not only increase the ultimate death benefit, but you can also borrow against it for immediate needs.
If that all sounds too good to be true, it actually is. Guaranteed issue life insurance has two limitations, and they’re both of the major variety (we’ll discuss the cost landmine in the next section).
Low Death Benefit
Guaranteed issue life insurance has a very low death benefit. The vast majority of policies available have a maximum death benefit of $25,000, and it can be less.
While that may be enough money to cover final expenses and even uncovered medical bills, it’s not the kind of death benefit that will provide for your loved ones after your death.
But covering final expenses is the most basic purpose for having this type of life insurance policy.
An Extended Waiting Period
Another major limitation is that all guaranteed life insurance policies come with a lengthy waiting period. Because the health of the applicant is not considered, the insurance company lowers its risk by imposing a timeframe within which it will not pay benefits.
With most policies, no death benefit will be paid if you die within the first two years the policy is in force (it can be as long as three years with some policies).
Should the applicant die within the waiting period, the insurance company will simply return any premiums paid up until the time of death. However, most policies will pay the full death benefit if the cause of death is due to an accident.
How Much Does Guaranteed Issue Life Insurance Cost?
As you might guess, guaranteed issue life insurance policies are expensive. In fact, they’re generally the most expensive type of life insurance on a per thousand dollars of coverage basis.
This is in part because of the small death benefit. On a per thousand dollars of benefit basis, life insurance policies become progressively less expensive as they get larger. For example, with a typical life insurance policy, the annual premium on a $500,000 policy maybe $5,000, or $1 per thousand dollars of coverage. On a $1 million policy, it may be $7,500, or $0.75 per thousand dollars of coverage.
On a guaranteed issue life insurance policy that tops out at $25,000, the cost per thousand dollars of coverage will be dramatically higher.
There’s also the fact that guaranteed issue life insurance is whole life insurance. Those policies are always more expensive than term policies, and by a wide margin. For example, a $500,000 whole life policy may have an annual premium of $5,000. The same death benefit on a term policy maybe only $750.
But the major cost factor is the core benefit of a guaranteed issue life insurance policy – the absence of health qualifications.
An applicant’s health condition is the primary risk factor an insurance company uses to determine the premium on a life insurance policy. But if health is going to be completely ignored, the policy will be priced at a high level that will compensate for the complete risk the insurance company is taking on.
Because of all the above, the premium on a $25,000 guaranteed issue life insurance policy may be $500 per month, or $6,000 per year. That’s a huge cost for such a small amount of coverage.
The Pros & Cons of Guaranteed Issue Life Insurance
- Life insurance policy that will be approved regardless of the state of your health.
- There are no health-related questions, and no medical exam is required.
- The coverage is permanent – there will never be a need to reapply in the future.
- Both the death benefit and the premium are fixed for life.
- As a whole life insurance policy, guaranteed issue life insurance accumulates cash value.
- Guaranteed issue life insurance can provide coverage for those who cannot get life insurance any other way.
- Low death benefit, usually topping out at $25,000.
- Premiums are extremely high, especially considering the low death benefit.
- The two-year waiting period holds the possibility that your beneficiaries may never collect the death benefit.
Is Guaranteed Issue Life Insurance Worth It?
The answer to that question depends on your personal situation. If you are in poor health, have a seriously reduced life expectancy, and are unable to qualify for a more conventional life insurance policy, guaranteed issue life insurance could be the perfect insurance solution. It won’t provide a sufficient amount of coverage to take care of your beneficiaries after your death, but it can be enough to cover your final expenses.
However, even in this situation the major limitation can be cost. If you have limited financial resources, which could be the result of poor health, you may not be able to afford the premiums. But it still may be worth having, since you do have the option to take a less expensive policy with a lower death benefit.
But if the main reason for choosing guaranteed issue life insurance is to avoid dealing with the health-related scrutiny that comes with most life insurance policies, guaranteed issue life insurance is a poor choice.
If you’re able to qualify for traditional insurance, you’ll be able to get more cost-effective coverage with a fully medically underwritten policy. The premium will be more expensive than if you are in good or excellent health, but you’ll get a larger death benefit at a lower cost than if you were to take a guaranteed issue life insurance policy.
Guaranteed issue life insurance is best for anyone who needs life insurance coverage, and can’t qualify by any other means. But if you can get a medically underwritten policy, that will certainly be the better choice.*While we make every effort to keep our site updated, please be aware that "timely" information on this page, such as quote estimates, or pertinent details about companies, may only be accurate as of its last edit day. Huntley Wealth & Insurance Services and its representatives do not give legal or tax advice. Please consult your own legal or tax adviser.