What Is Guaranteed Issue Life Insurance?
Guaranteed issue life insurance, also known as guaranteed acceptance life insurance, is a type of whole life insurance policy that eliminates the need for health questions, medical exams, or medical record reviews by the insurance company. It is often referred to as “no questions life insurance” or “no questions final expense insurance.”
While this may sound appealing, there is a crucial caveat to consider. Guaranteed issue life insurance comes with a waiting period. If the policyholder passes away during this period, their beneficiaries will not receive the death benefit. Typically, the waiting period ranges from two to three years.
Contrary to misconceptions, it is not a scam. Should the insured die during the waiting period, the insurance company will reimburse the premiums paid, along with interest usually set at 10%, to the beneficiaries.
Despite the reduced benefit, this waiting period acts as a safeguard for insurance companies to prevent abuse of the system. Guaranteed issue life insurance serves as a lifeline for individuals with health challenges who would otherwise struggle to secure coverage.
Key Takeaways:
- Guaranteed issue life insurance is a type of whole life insurance that does not require health qualifications.
- It offers a death benefit ranging from $2,000 to $25,000 for the insured’s beneficiaries.
- While the policy does not pay out during the initial two to three years, it refunds premiums plus 10% interest if the insured passes away during this period.
- Designed for individuals with severe health conditions, guaranteed issue policies generally have higher premiums relative to their benefits due to the policyholders’ poor health.
How Guaranteed Issue Life Insurance Works
These policies get their name from the assurance that the insurance company will issue a policy to individuals within the allowable age range at the time of application. Typically, the qualification age bracket is between 50 and 80 years. While some companies may offer guaranteed issue policies outside this range, choices become limited.
Given the age limitations and absence of medical underwriting, insurance companies primarily target this age group for guaranteed issue policies. However, individuals within this bracket, even with health issues, may have alternative options. Guaranteed issue life insurance is best suited for those with limited choices due to health constraints or financial constraints arising from health conditions.
Certain health conditions can disqualify individuals from traditional health insurance policies:
- Terminal illness with a life expectancy of fewer than two years
- Organ or tissue transplant history
- On dialysis
- Alzheimer’s or dementia diagnosis
- Residing in a nursing home or hospice care
- Cancer diagnosis (excluding basal cell or squamous cell skin cancer)
- AIDS or HIV positive status
- Wheelchair-bound due to chronic illness or disease
Individuals with challenging health conditions, resembling elderly family members, often fluctuating between good and bad health. While this instability poses high risk for most insurers, some cater to such profiles.
You may have encountered guaranteed issue life insurance through a commercial featuring Alex Trebek, as seen in a 2018 advertisement for Colonial Penn. His endorsement underscores the credibility of this insurance option, providing essential financial security for policyholders and beneficiaries.
The commercial accurately outlines key features of guaranteed issue life insurance, although the advertised monthly rate of $9.95 may not be typical. Nonetheless, insurers cannot deny coverage, increase premiums, or diminish benefits, as long as premiums are paid—a standard feature across whole life insurance policies, with guaranteed issue falling within this category.
Alternatives to Guaranteed Issue
Life insurance premiums are determined by various factors such as age, health, gender, death benefit, and policy type. Contrary to common belief, insurance companies apply the same underwriting guidelines across different insurance types, as confirmed by Rick Sabo, a financial planner and insurance expert.
Despite having a significant health condition like diabetes, different insurers may offer varied policy options. It is essential to explore policies requiring medical underwriting to find the most suitable coverage.
Many candidates with health issues assume they are ineligible for underwritten policies, but this is often not the case. Depending on the condition and insurer, individuals with congestive heart failure, recent heart attacks, or strokes can secure life insurance with underwriting.
While guaranteed issue policies serve a vital purpose, those seeking small policies may benefit from exploring guaranteed universal life or final expense insurance offering coverage with fewer limitations. Guaranteed issue is an excellent choice for those who do not qualify for underwritten policies.
Guaranteed Issue: What’s the Catch?
One may question the sustainability of guaranteed issue policies due to apparent advantages for unhealthy individuals. However, insurance companies remain viable by primarily earning from investments rather than merely premiums and benefits, as highlighted by life insurance broker Anthony Martin.
Insurers generated $159.5 billion in premiums and $200.8 billion in net investment income in 2021, demonstrating the importance of investment strategies. These companies allocate funds into diverse assets like stocks, real estate, and derivatives.
While insurers may incur losses on early client deaths under guaranteed issue policies, it typically takes five years for them to break even. In most scenarios, policyholders benefit, barring cases where premiums exceed the policy value due to prolonged longevity.
Insurance companies sustain offerings deemed favorable for policyholders as they capitalize on lapsing policies, a common occurrence where individuals discontinue payments, resulting in lower payouts. Understanding this aspect can provide insights into the financial dynamics of insurance companies.
When Guaranteed Issue Falls Short
Two situations where guaranteed issue policies may prove less advantageous are when premiums paid surpass the death benefit or when individuals are eligible for underwritten policies at better rates and immediate benefits.
Underwritten policies offer lower premiums, immediate benefits, or graded benefits instead of a waiting period, making them a preferable option under certain circumstances.
The Bottom Line
Despite potential limitations, guaranteed issue life insurance remains a critical financial asset for individuals facing insurance barriers. It provides a planning tool, not limited to seniors, but extending to younger individuals with health challenges aiming to secure their family’s future.
Given the unique traits of each guaranteed issue policy, diligent research is essential to identify an optimal fit. Prioritize sustainable rates to ensure financial stability regardless of changing circumstances. Exploring underwritten policies alongside guaranteed issue can reveal unforeseen possibilities, emphasizing the importance of application over assumption.