What is Guaranteed Issue Life Insurance?
Guaranteed issue life insurance is a type of life insurance that you can get without undergoing the usual medical underwriting process, meaning you won’t need to get a medical exam or answer a medical questionnaire. Instead, when you apply for a policy, your application is guaranteed to be accepted by the life insurance provider, provided that you are within the specified age bracket that’s why it is also known as Guaranteed Acceptance Life Insurance).
The basics of guaranteed issue life insurance
Guaranteed issue life insurance is exactly what it sounds like: life insurance that, should you apply, you’re nearly guaranteed to get approved for. That makes it a boon to people who have applied for other life insurance policies and been denied coverage because of a medical condition.
There are some very specific conditions in which a life insurance provider may deny coverage for even a guaranteed issue policy, the most common one being age: to qualify for a guaranteed issue policy, most insurers have a minimum age of 40 to 50 and an age limit of 80 or 85. This makes guaranteed issue an ideal policy for older people who have serious health issues.
Some insurance companies also make people ineligible for this type of policy if they have dementia or do not meet specific citizenship requirements. All that said, most people who apply for guaranteed issue coverage will get it.
In most cases, these guaranteed life policies offer whole life insurance coverage. That means that they last your lifetime (i.e., they won’t expire like term life insurance policies). They also include a cash value component or a savings vehicle within the policy.
Unlike traditional whole life policies, guaranteed issue life insurance almost always comes with a relatively small death benefit. While you might get a standard whole life death benefit of $1 million, for example, guaranteed issue policies usually cap the death benefit somewhere around $25,000.
Pros of guaranteed issue life insurance
Because this life insurance is just that — guaranteed to issue when you apply — it can be a big help to people with specific medical conditions. That’s because most life insurance requires you to undergo a medical exam as part of the application process.
If that medical review turns up anything that suggests to the life insurance provider that you don’t have a particularly long life expectancy, they can deny you coverage. Without many years to collect premiums from you, it often doesn’t make financial sense for them to offer life insurance coverage in these cases.
Fortunately, guaranteed issue life insurance presents an alternative to individuals who find themselves in this scenario. These policies provide a surefire way for sick individuals to leave their dependents with something after they’re gone.
Cons of guaranteed issue life insurance
We’ve already outlined one major drawback of guaranteed issue life insurance: the limited death benefit. It likely won’t be enough to help with any sort of longer-term income replacement, although it can step in to cover end-of-life medical expenses and funeral costs.
But there’s another serious con to consider, as well. Guaranteed issue life insurance policies come with an extensive waiting period, usually two or three years. The reason for this waiting period is the higher risk that the insurance companies assume (by not having the insured go through a medical exam) and to help them avoid having to pay out the full death benefit after only receiving a few months of premiums.
The good news is that if you pass away during the waiting period, your beneficiaries will still get something from the life insurance company. In most cases, they’ll get all of the premiums you had paid toward the policy returned to them, and many life insurance providers also add a small rate of interest to that amount.
The final mark against this type of life insurance is the cost. People pay significantly more for guaranteed issue life insurance relative to the death benefit than they would with other types of life insurance. Coverage is usually also limited to smaller amounts (around U$25K in most cases).
That said, if it’s the only type of life insurance for which an individual is eligible, these policies can be an option that enables them to leave a lump sum behind for the people who depend on them.