Do you need life insurance but are concerned that certain health conditions you have may prevent you from getting it?
If so, guaranteed issue life insurance is a specific type of life insurance that can provide coverage regardless of your health.
It’s a bit more complicated than standard life insurance policies, and there are a few special provisions you need to be aware of.
But if you need life insurance, and you haven’t been able to get it from all the usual sources, a guaranteed issue policy may be the solution to your dilemma.
What is Guaranteed Issue Life Insurance?
Before you can fully appreciate what guaranteed issue life insurance is about, let’s first review how traditional life insurance works.
When you apply for a traditional policy, you will be required to answer a series of health-related questions and you may need to submit to a medical exam as well.
The exam will involve an insurance company-appointed health practitioner coming to your home or office and performing a relatively routine health check.
That will include taking blood and urine samples, measuring your height and weight, checking your heart rate and pulse, and taking your blood pressure.
Whether it’s the health questionnaire on the application or submitting to a medical exam, either hold the potential result of a declined application.
Especially if you have a significant medical condition.
The specific purpose for guaranteed issue life insurance is to provide coverage for those who won’t qualify for a policy that involves a medical evaluation.
As the name implies—with the word “guaranteed”— guaranteed issue life insurance can be provided without traditional medical underwriting.
That’s fortunate, too. There are—quite literally—millions of Americans who have one or more serious health conditions that would disqualify them from traditional life insurance.
The insurance industry recognizes this reality, and that’s the reason why this policy option exists.
How Guaranteed Issue Life Insurance Works
You are probably aware that there are two basic types of life insurance: term and whole life.
Guaranteed issue life insurance is actually a form of whole life insurance.
That’s a good thing. Because it means the policy won’t expire as long as you make the premium payments.
It also means your premiums will never increase. And you will build cash value in the policy.
With a whole life policy, a large chunk of your premium payment goes toward your cash value.
As that builds up, it not only increases the death benefit that will be paid on your policy, but you can also borrow against it for current needs.
The policy is designed specifically for those with chronic health conditions, which is why it’s not medically underwritten.
Insurance companies know you have one or more major health conditions by virtue of the fact that you require such a policy.
It can sometimes go by different names, examples include:
- burial insurance
- guaranteed acceptance life insurance
- final expense insurance
Guaranteed Issue Life Insurance Limitations
Now we need to discuss policy limitations with guaranteed issue life insurance.
1. Low Death Benefit
The first is a low death benefit. Because of the nature of guaranteed issue life insurance—insuring high-risk applicants—the death benefit is limited.
A typical death benefit is no more than $25,000, though some insurance companies may go higher.
2. Extended Waiting Period
The second limitation is an extended waiting period. A waiting period is a period of time in which the policy is in force, but the company will not pay a death benefit.
This gets back to the health condition (or conditions) that is the entire purpose of applying for guaranteed issue life insurance.
Because this is an unknown, life insurance companies impose a waiting period of two years (sometimes three) during which no benefit will be paid if you die.
Providing life insurance is all about evaluating and insuring around risk. This policy is designed for those with chronic health conditions.
But it’s not to provide a death benefit for an applicant whose death is imminent.
The waiting period lowers the insurance company’s risk by giving an opportunity to collect enough premiums to justify issuing the policy.
Even with a two-year waiting period, the company may lose money on the policy if the applicant dies shortly after.
Insurance risk evaluation is based on averages. While some applicants will die shortly after the waiting period, others will continue to live for many years.
Insurance companies have plenty of data to help them evaluate the risk of their guaranteed issue life insurance population base.
If the applicant dies during the waiting period, the insurance company will return the premiums paid to the applicant’s beneficiaries.
However, some guaranteed issue policies offer what’s known as a graded death benefit.
That’s where the company will pay a certain percentage of the death benefit at certain points in the policy. For example, it may pay 25% during the first year, 50% within the first two years, and so on.
3. Cost of Guaranteed Issue Life Insurance
The third limitation is the cost.
A life insurance policy in which no health qualifications are required is obviously a high-risk policy.
And in the way that insurance works, high risk translates into a higher premium.
For example, you may pay $500 per month for a policy with a $25,000 death benefit.
That translates into $6,000 per year, which means the cost will exceed the benefit if you live much more than four years.
But generally speaking, a guaranteed issue life insurance policy will only be issued to someone who doesn’t expect to live that long.
If you knew you were, the better strategy would be to simply move $500 per month into a savings account, and allow the money to build in lieu of a life insurance death benefit.
This is the major disadvantage with guaranteed issue life insurance. It’s certainly very expensive coverage for the benefit it provides.
But for the person who needs life insurance now, and doesn’t know how long he or she will live, it can be the right choice.
Guaranteed Issue Life Insurance Carriers
Many life insurance companies offer a guaranteed issue life insurance option.
You can certainly inquire about the policy type with any insurance company you’re working with.
But a better alternative is to work with an insurance broker. Especially when guaranteed issue life insurance is what you need.
Guaranteed issue life insurance policies are unique to each insurance company that issues them.
A broker will be able to help you compare several plans side-by-side and to select the one that’s best for you.
Apart from individual insurance companies that offer a guaranteed issue life insurance option, there are some companies that specialize in the policy type.
Two examples are Gerber Life and Colonial Penn.
Gerber Life offers guaranteed life insurance with death benefits ranging from $5,000 to $25,000.
The policy is designed to cover final expenses, and your acceptance is guaranteed.
The plan is designed for those between the ages of 50 and 80, and it is a whole life policy with a cash value provision.
You can borrow against that cash value at a current interest rate of 8%.
They offer a graded death benefit during the first two years as long as the cause of death is natural and not accidental.
If it occurs within two years, your premiums will be reimbursed, plus 10%.
Colonial Penn offers their guaranteed acceptance life insurance to applicants between the ages of 50 and 85.
They make it clear you cannot be turned down because of your health and they don’t even ask any health questions on the application.
Its whole life, offering permanent coverage with fixed premiums, and a cash value feature that can be borrowed against.
They also impose a two-year limited benefit period.
Guaranteed Issue Life Insurance Pros and Cons
- Guaranteed issue life insurance is available for all health profiles, and may be the only alternative to traditional life insurance.
- Approvals are quick, and about as close to a guarantee as you can get in the insurance industry.
- Since the policies are whole life, they cannot be canceled except for nonpayment of the premium.
- Whole life also means the policy will accumulate cash value, which will either increase the death benefit or be available for immediate needs.
- The premium is fixed for life, and so is the death benefit.
- There are no health-related questions and no medical exam, which will be a relief to the applicant who feels either will result in being declined.
- The premiums on guaranteed issue life insurance are notoriously high.
- The death benefit is low, typically no more than $25,000. In some cases it may be even less.
- Since there is a waiting period of two or three years, your beneficiaries would be left with only a return of your premiums should you die within that window.
- Guaranteed issue life insurance is not available for applicants who are terminal.
- Your application may be declined if you are in a nursing home.
Alternatives to Guaranteed Issue Life Insurance
Before signing up for a guaranteed issue life insurance policy, you should first consider the alternatives. There are several.
Term Life Insurance
With advances in medical technology and increasing lifespans even after the onset of severe illnesses, the insurance industry is now more open to providing coverage for those with past health problems.
It’s possible to get a term policy even if you have diabetes, heart disease, or a bout with cancer in your past.
Though you may not qualify for a traditional whole life policy with a health condition, you may be approved for a five- or 10-year term life insurance policy.
This may be the single best alternative if you are under 65.
Simplified Whole Life Insurance
With a simplified whole life insurance policy you will need to answer medical questions on the application.
But these policies are much more accommodating of health conditions than traditional policies.
They’ll be more expensive than traditional life insurance.
But less expensive than guaranteed issue life insurance and will offer a higher death benefit as well.
Prepaid Funeral Expenses
For many people looking for a guaranteed whole life insurance policy, the primary concern is covering final expenses.
But it is possible to pay these expenses in advance through the funeral home of your choice.
You’ll need to turn the funds over to the funeral parlor upfront, but some may offer an installment payment arrangement.
This will not provide for other expenses or any benefit for your loved ones. But it will cover your funeral costs.
Fund a Dedicated Savings Account
Given that guaranteed issue life insurance is so expensive, you may be able to accumulate the desired death benefit in a savings account.
For example, dedicate the money you would pay for a policy to a savings account instead. You may accumulate an equivalent amount in four or five years.
This option, of course, must be considered in light of the number of years you expect to live.
Is Guaranteed Issue Life Insurance Best for You?
This is a tough question to answer, because the value window on guaranteed issue life insurance is especially narrow.
For example, if you don’t expect to live for at least another two years, a guaranteed issue policy will have a reduced benefit.
Of course, that won’t make it totally worthless either. Insurance companies will typically refund the premiums paid, often with interest added. So your beneficiaries will at least receive that amount upon your death.
On the flipside, if you expect to live substantially longer than the waiting period for the guaranteed issue policy you’re considering, the premiums on the policy may outweigh the death benefit.
Especially if you expect to live for at least another five years.
That being the case, funding a savings account may be a better alternative.
One other factor that needs to be seriously considered is your ability to continue paying the premiums on a guaranteed issue policy.
If you sign up for a policy, then stop making the payments after two or three years due to the high cost of those premiums, you’ll lose the death benefit.
You may receive the cash value of a policy. But it will be shockingly small that early into the term of the policy.
Once again, you should consider alternatives to guaranteed issue life insurance before signing up for a policy.