What is Guaranteed Issue Life Insurance?
Guaranteed issue life insurance, or guaranteed acceptance life insurance, is a type of whole life insurance policy that does not require you to answer health questions, undergo a medical exam, or allow an insurance company to review your medical and prescription records. It may also be called “no-questions life insurance” or even “no final expense insurance”.
It sounds great, right? But here’s the catch. There is a waiting period for guaranteed issue life insurance. If you die during the waiting period, your beneficiaries will not receive the policy’s death benefit. Most policies have a waiting period of two years. Some policies have a three-year waiting period.
This isn’t a scam. The insurance company will reimburse your beneficiaries all of your premiums and interest if you die within the waiting period.
You will still be able to give your beneficiaries something, but it will be less than you would like. This waiting period was put in place by insurance companies because everyone could apply for life insurance and pay just a few hundred dollars to receive a $25,000 family benefit. This is how insurance companies could not continue to exist. Insurance companies that guarantee life insurance coverage can provide coverage for sick people who otherwise wouldn’t be able to get it.
KEY TAKEAWAYS
- Guaranteed issue insurance is a policy that covers whole life with no medical conditions.
- It provides a cash benefit of $2,000-$25,000 to the beneficiaries.
- Guaranteed issue insurance does not provide death benefits for the first two to three years of the policy. However, it will return the policy’s premiums plus 10% interest in the event that the insured dies.
- People with severe health conditions cannot buy policies that provide immediate death benefits and can only be issued guaranteed issue policies.
- Guaranteed policies have higher premiums than other types of life insurance because policyholders are generally in poor health.
How Guaranteed Issue Life Insurance Works
These policies are named because the insurance company guarantees that they will issue you a policy as long as your age is within the permitted range. They are essentially stating that they will accept your application as a policyholder. The typical age range to qualify is 50 to 80 years old. You may still be eligible for a guaranteed policy with some insurance companies if you are not within this age group. However, your options will be limited.Given these age requirements and the lack of medical underwriting (health questions), you can see why insurance companies market guaranteed issue policies to this age group.Yet many people in this age group, even those with health problems, have options besides guaranteed issue life insurance. This insurance is ideal for those who don’t have any other options due to their health or who cannot afford other options.
What conditions are disqualifying you from any type of insurance? There are not as many as you might think.”]”=””>
- A terminal illness is a condition that has a shorter life expectancy than two years.
- A tissue or organ transplant has been required or you have had one.
- You are currently on dialysis.
- You may have Alzheimer’s disease or dementia.
- You are either in a nursing facility or hospice.
- It’s possible to have cancer, but it isn’t basal or squamous-cell skin cancer.
- HIV/AIDS is a serious illness.
- You are in a wheelchair because of a chronic illness or disease.1
You’re likely to have seen the person with multiple or multiple conditions if you’ve had an elderly grandparent or parent. They can have their good and bad days. Sometimes they seem to be on the verge of death. But then, they turn around and appear better than ever. It can be very difficult for them to maintain their physical, mental, and/or physical health. This level of instability is too risky for most insurance companies, but there are some that specialize in it.
Guaranteed Issue: What’s The Catch?
Guaranteed issue policies may sound too good to true, despite the waiting period. People who are not in good health take out policies and pay their premiums. They then die within a few months to a few years. The insurance company must either pay the death benefit or return the money. These policies are affordable by insurers.
“The way life insurance companies make a bulk of their profit is not via the collection of premiums minus death benefits,” says life insurance broker Anthony Martin, the CEO of Choice Mutual. Martin says that life insurance premiums work in the same way as interest-free loans for an insurance company. That money is invested by the company.
According to the Insurance Information Institute (a non-profit communications organization that supports the insurance industry), life insurance companies earned $186.6 billion in investment income and $145.1 billion in premiums in 2019. Insurance companies invest in stocks and mortgages, real property, derivatives, as well as other assets.
Martin says that guaranteed issue insurance companies do lose money on clients who pass away within the first two year. This type of insurance is profitable for most clients and takes the company five years to break even. He continues, “The only way the insured wouldn’t come out ahead is if their premiums exceed the policy.”
If a Guaranteed Issue is Not Available
Two scenarios are possible where a guaranteed-issue policy may not be worth the cost or prove to be the best choice. These include if the insured dies before the death benefit is exhausted or if they buy a guaranteed-issue policy instead of a policy with medical underwriting.
Medical underwriting policies have lower premiums and provide a higher death benefit. These policies offer death benefits immediately or a graded benefit, instead of a waiting period.
The bottom line
These factors aside, guaranteed issue can still be a great financial asset for those who are unable to get insurance. These people may not be seniors, but they could also be middle-aged or younger adults with poor health who wish to leave money for their loved ones.
Guaranteed issue life insurance policies can be different from one another. So, as with other insurance policies, you should shop around for the one that best fits your needs. That way, you’re more likely to find the best life insurance policies currently on the market. You should look for rates that are affordable. This will ensure you can keep up with your policy, even if your financial situation changes. Don’t assume that you won’t be able to qualify for a policy with a health questionnaire. It is impossible to know until you apply.
