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. You may also see it referred to as “no questions life insurance” or “no questions final expense insurance.”
Sounds convenient, right? Here’s the caveat. Guaranteed issue life insurance always has a waiting period. If you die during the waiting period, your beneficiaries will not receive the policy’s death benefit. With most policies, the waiting period is two years, but for some, it’s three.
This isn’t a scam. In fact, if you pass away during the waiting period, the insurance company will repay all your insurance premiums plus interest, usually at a rate of 10%, to your beneficiaries.
Your beneficiaries will still receive something, even though it may be less than expected. Insurance companies enforce this waiting period to prevent individuals from buying insurance on their deathbeds, paying minimal premiums to secure significant death benefits. No insurance company could stay profitable that way. Guaranteed issue life insurance provides coverage to individuals who might otherwise be uninsurable due to poor health.
Key Takeaways
- Guaranteed Acceptance: A small whole life insurance policy with no health qualifications.
- Death Benefit: Provides a cash death benefit of $2,000 to $25,000 to beneficiaries.
- Waiting Period: Does not pay death benefits during the first two or three years of the policy but returns the premiums plus interest if the insured dies during this period.
- Target Audience: Designed for those with severe health conditions that preclude immediate death benefits.
- Cost: Generally, higher premiums relative to death benefits due to the policyholders’ poor health.
Understanding the Mechanism of Guaranteed Issue Life Insurance
These policies guarantee issuance regardless of health, so long as you’re within the allowed age range. Typically, you need to be between 50 and 80 years old. Outside of this range, options are more limited, though still available with some insurers.
Because of the age and no medical underwriting, insurers target this product towards older adults. Many seniors, even those with health problems, may still find alternative insurance options. Guaranteed issue life insurance is often a last resort for those who can’t opt for other policies due to severe health issues or prohibitive costs.
Health Conditions That May Necessitate Guaranteed Issue
For many, certain severe health conditions will make guaranteed issue life insurance a necessity:
- Terminal illness with a life expectancy of less than two years.
- Requirement or history of an organ or tissue transplant.
- Dialysis.
- Alzheimer’s or dementia.
- Residency in a nursing home or hospice.
- Non-skin cancers.
- AIDS or HIV.
- Wheelchair dependency due to chronic illness or disease.
These conditions make conventional insurance options difficult to acquire due to their associated risks. Yet, insurers specializing in guaranteed issue policies accept these risks.
Guarantee in Commercials: Real or Misleading?
Guaranteed issue life insurance is often advertised on television, sometimes by beloved spokespersons like Alex Trebek. These commercials accurately state that insurers cannot deny coverage, raise premiums, or lower death benefits, provided premiums are paid. However, most applicants pay more than the captioned $9.95 per month.
Exploring Alternatives to Guaranteed Issue Life Insurance
Life insurance premiums are influenced by age, health, gender, the death benefit amount, and policy type. Different insurance companies may place you in different risk categories depending on their underwriting guidelines. Hence, a specific health condition like diabetes may yield better policy terms with one company over another.
Surprisingly, many believe they are ineligible for policies requiring medical examinations when that’s often untrue. For example, life insurance can still be obtained post-congestive heart failure, heart attack, or stroke. It’s usually worth applying for multiple policies that ask health questions to secure better coverage and rates. Small policy seekers could consider guaranteed universal life or final expense insurance for comprehensive benefits. While guaranteed issues are valuable, they cater primarily to those in opportune positions for other policies.
The Hidden Factors Behind Guaranteed Issue
Guaranteed issue might seem foolproof aside from the waiting period. Companies tribute their profits, not from premiums minus death benefits, but from investments. These collected premiums create an interest-free loan, ripe for investment in stocks, real estate, and derivatives.
In 2021, insurers netted $159.5 billion in premiums and $200.8 billion in investment income. While firms may lose money to clients dying within two years, the break-even occurs at five years. Insured individuals usually benefit unless they outlive their premium payments.
Handling Lapsed Insurance
Policies lapse when holders cease premium payments, stopping their coverage. A cash surrender value might be retrieveable, yet it’s substantially less than what accumulated premiums or death benefits offer. In 2021, $362.7 billion was received for lapsed policies, benefitting insurers.
When Guaranteed Issue Might Not Be Ideal
Situations arise where guaranteed issue is not the best option, such as instances where longevity leads to premiums surpassing the death benefit, or where applicants could qualify for underwritten policies featuring lower premiums and no waiting periods.
Final Thoughts
Despite limitations, guaranteed issue life insurance is a suitable financial instrument for the uninsurable. Consider your specific circumstances and compare available policies to find the best fit. Affordable premiums are critical as lapsed policies offer no benefit. Lastly, never assume a policy with health questions is impossible to acquire—application could bring surprising results.
Related Terms: whole life insurance, death benefit, medical underwriting, final expense insurance, guaranteed universal life
References
- Choice Mutual, “Guaranteed Issue Life Insurance: Insider’s Guide to Benefits, Pros, and Cons”.
- AIG Direct, “Guaranteed Issue Life Insurance”.
- JRC Insurance Group. “What Is Guaranteed Universal Life Insurance?”
- Insurance Information Institute. “Facts + Statistics: Life insurance: Life/Annuity Insurance Income Statement, 2017-2021”.
