Guaranteed issue life insurance is a type of no exam life insurance policy geared toward people who cannot qualify for traditional life insurance policies. Not only does guaranteed issue not require a medical exam, but it doesn’t require any health or lifestyle information at all. You can simply apply and receive approval, usually immediately.
As you can imagine, a life insurance policy that doesn’t require any health information comes at a cost, and quite a high cost at that. Guaranteed issue policies are the most expensive type of life insurance policies, simply because the insurer needs to cover its risk. Here you can get an idea of how much you can expect to pay for a guaranteed issue policy.
Another way insurers cover their risk is by limiting coverage, usually to $25,000 or $50,000 at the most. While the coverage doesn’t go high, it’s still better than nothing, and for some people, it can mean the difference between passing on debt to their loved ones or not.
The benefit of guaranteed issue is that you don’t have to take a medical exam in order to get it. Approval is instant, making it an easy purchase. And like other whole life insurance policies, guaranteed issue does not come with an expiration date. However, unlike other whole life insurance policies, guaranteed issue doesn’t accumulate a cash value — you simply pay the premiums in order to get the death benefit.
How does it work?
When you apply for guaranteed issue life insurance, it’s usually because you’ve been turned down for a traditional policy or different type of no exam policy. As long as you are under the age limit specified by the insurer (usually 80), you can be approved for a guaranteed issue policy. As long as you pay the monthly premiums, the policy will be in effect for the rest of your life.
Some guaranteed issue policies come with a graded death benefit, which means that you need to have owned the policy for at least two years before you die in order for your beneficiaries to receive the death benefit payout. If you die within two years of purchase, your beneficiaries will receive only a portion of the death benefit, or only the amount you’ve paid in premiums.
Many people choose guaranteed issue life insurance as a way to cover their final expenses. In these cases, the death beneficiary can be the funeral home itself, which will take care of the policyholder’s final expenses.
Pros of Guaranteed Issue Life Insurance
While guaranteed issue is thought of as a last resort, that doesn’t mean it doesn’t come with benefits. The main benefits are:
- Guaranteed acceptance
- Instant approval
- Entirely online application process
- Getting the coverage you need
Cons of Guaranteed Issue Life Insurance
People consider guaranteed issue a last resort for several reasons:
- It’s expensive
- They may not get the full death benefit payout
- Coverage is limited
If the cons of guaranteed issue outweigh the pros in your situation, you can seek other insurance options. Simplified issue and funeral insurance are two alternatives to guaranteed issue, but they don’t work for everyone.
Simplified Issue Life Insurance
Simplified issue is a type of no exam life insurance that offers higher coverage than guaranteed issue and is less expensive. The reason why coverage is higher and premiums are lower is because applicants must answer several health and lifestyle questions in order to qualify. Additionally, the insurer will run an MIB database check, a pharmacy check, and driving records check.
If underwriters determine that you are too high risk, they can deny your application for simplified issue life insurance. If you are approved, you can get coverage as high as $500,000.
Funeral insurance is usually sold by funeral homes and its sole purpose is to cover the final expenses of the policyholder. The beneficiary is typically named as the director of the funeral home and the death benefit is just enough to cover funeral and burial expenses. The benefit of this insurance is that you can lock in a lower funeral/burial cost by buying in advance, but the downside is that you won’t have any leftover cash to leave your loved ones.
Guaranteed issue life insurance is a good option for people who have been turned down for traditional life insurance policies or other no exam policies. If you think that you can receive approval for a non-guaranteed issue policy, it’s best to try for those first. If not, guaranteed issue can give you the peace of mind knowing that you will have something to leave your loved ones after you pass.