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Guaranteed Issue Life Insurance

Buying life insurance coverage is a breeze if you are young and healthy. You can undergo a paramedical exam, qualify for the lowest risk class, and buy the amount of coverage you need at very affordable rates.

If you, on the other hand, are old and suffering from serious health problems, buying life insurance coverage can prove to be a difficult task, owing to your increased mortality risk. In such cases, a guaranteed issue life insurance policy could be the right choice for you.

What is Guaranteed Issue Life Insurance?

Guaranteed issue life insurance, also referred to as guaranteed acceptance life insurance, is a type of permanent life insurance coverage that you can purchase without having to undergo a physical examination or answer any questions related to your health conditions.

In fact, you are not required to meet any health-related criteria in order to qualify for a guaranteed issue life insurance policy. If you apply for a policy, you will get accepted by the insurer – irrespective of other factors.

How is Guaranteed Issue Different from a Regular Term Life Insurance Policy?

Generally, when you apply for a life insurance policy, you have to go through the underwriting process. During the course of this process, the underwriter, who works for the insurance company, determines your insurability, and assigns you a risk class.

Your insurability is generally determined based on a variety of factors like age, health condition, family medical history, occupation, lifestyle, and driving record.

Based on your insurability, you can qualify for one of the following risk classes – preferred plus, preferred, standard plus, standard, and substandard – with ‘preferred plus’ being the lowest risk class and ‘substandard’ being the highest.

The cost of your life insurance policy is calculated based on your insurability and the risk class you are assigned. The higher the risk of mortality, the higher your premiums tend to be.

In contrast, when you apply for a guaranteed issue life insurance policy, you do not have to go through the underwriting process at all. The policy is specifically designed to provide life insurance coverage for people with a high risk of mortality. So, there is no need for you to prove your insurability at all.

When you apply for a guaranteed acceptance life insurance policy, the insurance company only takes three factors into account – your age, gender, and location. The cost of your policy is determined based on these factors alone.

How Does a Guaranteed Issue Life Insurance Policy Work?

A guaranteed issue life insurance policy, like any permanent life policy, covers you until your death. It is a level-premium policy, which means the premium amount remains unchanged for the entire length of the coverage period. As long as the premiums are paid on time, the policy stays in force. It lapses only if you fail to pay the premiums.

The policy offers living benefits in the form of a cash value account, which earns interest and grows in value throughout the coverage period. You can withdraw a portion of the accumulated cash value or borrow against it to meet your financial needs.

The most important thing you need to know about a guaranteed life insurance policy is that it typically comes with a two-year waiting period. If you die within two years of buying the policy, your family will not receive the entire death benefit amount.

Instead, they will receive the total amount of premiums you had paid into the policy until your death, along with a 10% interest. Once the waiting period is over, your family becomes eligible to receive the entire death benefit amount if you pass away.

It should be noted that the waiting period rule is applicable only if you pass away as a result of a natural cause. If your death is caused as a result of an accident – even on the very first day of the coverage period – your family will receive the full death benefit amount.

Advantages of Guaranteed Issue Life Insurance

Guaranteed Acceptance

The unique selling point of guaranteed issue life insurance is that you cannot be rejected or turned down by the insurance provider for any reason. If you can afford the premium payments, you can buy a policy.

It can be extremely beneficial for people with serious pre-existing conditions, who might not be able to qualify for a traditional term or permanent life insurance policy.

No Need to Prove Insurability

You are not required to answer any health-related questions, go through a medical exam, or prove your insurability in any other way in order to buy a guaranteed issue policy.

Fast Approval Process

With a traditional term or permanent life insurance policy, the approval process can take anywhere from two to six weeks. With a guaranteed issue policy, the approval process is a lot faster, since there is no underwriting involved.

Disadvantages of Guaranteed Issue Life Insurance

Expensive

One of the biggest disadvantages of guaranteed issue life insurance is that it is very expensive. Guaranteed issue policies are generally meant for people with an increased risk of mortality. So, to offset the risks involved, insurance companies tend to bump up the premiums considerably.

For instance, if you are a 60-year-old man living in California, you can expect to pay as much as $60 per month for a $10,000 policy.

Limitations in Buying Coverage

With a traditional term life or permanent life policy, you can buy as much coverage you need. This is, however, not the case with a guaranteed issue life insurance policy. The death benefit can be anywhere from $5,000 to $25,000, which should be sufficient to cover your final expenses.

Waiting Period

As mentioned above, guaranteed issue policies have a graded benefits system, wherein your family will not be paid the full death benefit if you die of a natural cause within two years of buying the policy.

Instead, the insurance company will refund the premium payments, which you had paid into the policy until your death, along with a 10% interest.

Needless to say, this can be a problem, especially if your family does not have any savings to cover your final expenses and are totally dependent on the life insurance payout.

Who is Guaranteed Issue Life Insurance Meant For?

If you are suffering from serious health problems and if you are not able to buy any other type of policy, it makes sense for you to buy a guaranteed issue life insurance policy.

In the absence of life insurance, your family will have to pay for your funeral service out of their own pocket. Data shows that the cost of an average funeral can range from $7,000 to $10,000. Your family might struggle to come up with the money, especially at a time of grieving.

So, even if you are unable to buy a traditional life insurance policy, you should at the very least buy a guaranteed issue policy, which can pay for the costs associated with your funeral.

Before applying for a guaranteed issue life insurance policy, you should do a cost-benefit analysis and find out if the policy is really worth paying for.

Let us assume that you buy a $10,000 policy, which costs $60 per month. If you pass away after five years, your family will receive $10,000, which should be sufficient to cover your burial expenses.

At the time of your death, you would have paid a total of $3,600 in premiums ($720 per year for a period of five years). In return, your family receives $10,000, which makes it a profitable deal.

If, on the other hand, you pass away after 15 years, your family will receive the same $10,000. The difference, however, is that you would have paid a total of $10,800 in premiums alone ($720 per year for a period of 15 years). In return, your family only receives $10,000, which makes it a losing proposition for you.

The point to be noted here is that buying a guaranteed acceptance life insurance policy makes sense only if you are suffering from a terminal illness and have less than five years to live. Otherwise, you will end up paying more in premiums compared to what your family stands to receive in the event of your death.

Are There Any Alternatives to Guaranteed Issue Life Insurance?

If you are not suffering from a terminal illness, you can apply for the following policies, which are less expensive and can provide you with a much large amount of coverage compared to a guaranteed issue life insurance policy.

Term Life Insurance

If you are under the age of 65, it might be an astute idea for you to apply for a traditional term life policy, even if you have been rejected before. You need to remember that the US life insurance industry is intensely competitive.

There are literally hundreds of companies and the underwriting guidelines tend to differ significantly from one company to another. So, if you get turned down by a company, do not get disheartened. Look for other companies with lenient underwriting guidelines and apply for a policy with them.

If you have pre-existing conditions, you have to pay a much higher rate compared to what a healthy person pays for the same amount of coverage. Still, it is likely to be cheaper than what you have to pay for a guaranteed issue policy with a very small death benefit amount.

Simplified Issue Life Insurance

If you are not able to buy term life insurance – due to your age, health condition, or any other reason – the next best choice would be simplified issue life insurance.

This type of policy is much easier to qualify for, since the application process does not involve a medical exam. You only need to answer a handful of questions related to your health and lifestyle.

Simplified issue policies are more expensive than fully underwritten term life policies, but less expensive than guaranteed issue policies. The amount of coverage you can buy is also substantially higher – most insurers allow you to buy up to $300,000 in coverage – compared to what you can buy with a guaranteed issue policy.

Final Expense Insurance

Final expense policies – as the term indicates – are meant to cover the expenses associated with your funeral. They are more expensive than term life and simplified issue policies, but cheaper than guaranteed issue policies.

In other words, you can buy the same amount of coverage – $5,000 to $25,000 – at a cheaper rate compared to a guaranteed issue life insurance policy. Final expense is a better fit for those in good health, and final expense policies do not have a waiting period like guaranteed issue policies.

Top Five Guaranteed Issue Life Insurance Providers

Given below is a list of five of the best guaranteed issue life insurance providers in the country today.

Mutual of Omaha

  • Age Limit: 45 – 85
  • Amount of Coverage You Can Buy: $2,000 – $25,000
  • Waiting Period: Two years
  • Interest Offered If the Policyholder Dies within the Waiting Period: 20% interest on the premiums paid
  • Average Cost of Policy: $55 per month

AIG

  • Age Limit: 50 – 85
  • Amount of Coverage You Can Buy: $5,000 – $25,000
  • Waiting Period: Two years
  • Interest Offered If the Policyholder Dies within the Waiting Period: 10% on the premiums paid
  • Average Cost of Policy: $63.17 per month

Gerber

  • Age Limit: 50 – 80
  • Amount of Coverage You Can Buy: $5,000 – $25,000
  • Waiting Period: Two Years
  • Interest Offered If the Policyholder Dies within the Waiting Period: 10% on the premiums paid
  • Average Cost of Policy: $63.89 per month

New York Life

  • Age Limit: 50 – 80
  • Amount of Coverage You Can Buy: $2,500 – $15,000
  • Waiting Period: Two years
  • Interest Offered If the Policyholder Dies within the Waiting Period: 10% on the premiums paid
  • Average Cost of Policy: $60 per month

Vantis Life

  • Age Limit: 50 – 80
  • Amount of Coverage You Can Buy: $5,000 - $20,000
  • Waiting Period: Two years
  • Interest Offered If the Policyholder Dies within the Waiting Period: None
  • Average Cost of Policy: $53.56

The Bottom Line

Guaranteed acceptance life insurance is a sensible choice if you are unable to qualify for any other type of life insurance. The payout from a guaranteed issue policy should be sufficient to cover your funeral expenses and help your family to give you a dignified sendoff.

You should apply for a guaranteed acceptance policy only after you have exhausted all the other options. In most cases, you might be able to buy other policies, which allow you to buy a significant amount of coverage at reasonably affordable rates.

If you have any questions regarding guaranteed issue life insurance, or any other type of life insurance for that matter, you can contact the experts at NoExam.com. We will be happy to answer all your questions and help you find a policy that meets your insurance needs.

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Jonathan Holloway
September 24, 2019
John Holloway is a licensed life insurance agent and co-founder at NoExam.com
Disclaimer: We make every attempt to make sure our information is up to date, but since things change often it is best to double check the data. This review is an opinion. Clicking on links may result in NoExam.com being compensated.