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Life insurance normally requires proof of health status to buy a policy. Guaranteed issue life insurance works differently, as virtually everyone is guaranteed to be able to buy it. This guide to guaranteed life insurance can help consumers decide if this type of insurance is right for their needs.
What is guaranteed issue life insurance?
Guaranteed acceptance life insurance or guaranteed issue life insurance is a specific type of life insurance policy. Unlike most term or whole policies, applicants aren't denied coverage due to their medical situation. Almost everyone who applies is able to get covered.
How guaranteed issue life insurance works
Guaranteed issue is a type of affordable life insurance for people whose medical conditions, age, or other factors make it difficult or impossible to get traditional life insurance coverage. Almost everyone who applies for a policy gets approved and typically no medical exam is required.
In some cases, a guaranteed issue life insurance policy is in effect for life after signing up. The policies are sometimes called final expense life insurance. This is similar to whole life insurance which also remains in effect indefinitely -- unlike guaranteed term life insurance which would be in effect only for a limited coverage term. However, guaranteed whole life insurance doesn't work like a traditional whole life policy because it doesn't acquire a cash value.
Guaranteed issue term life policies may also be available. These are in effect only for a limited time, such as 10 or 20 years. No death benefit is paid out if the policyholder doesn't die during the coverage term.
Most guaranteed life insurance has a low death benefit, such as $25,000. Many term and whole life plans, on the other hand, allow policyholders to buy millions in coverage if they prefer.
Waiting period
Guaranteed issue life insurance often has a waiting period. This would mean the policy must be in effect for a period of time before the full death benefit is paid out. Those looking for guaranteed acceptance life insurance with no waiting period will have a more limited selection of options.
Medical questions
Most guaranteed life insurance applications do not require applicants to answer medical questions to get covered. This is very different from other life insurance plans, which require applicants to provide an extensive medical history and sometimes even undergo a medical exam.
Graded death benefit
It is common for guaranteed issue life insurance to have a graded death benefit. When a policy has a graded death benefit, beneficiaries do not receive the entire amount of coverage in the first few years after the policyholder gets insured.
Often, the death benefit phases in over two years or so. If policyholders die within two years, they may receive just 110% of premiums paid. After the policyholder has held the coverage for longer, then the entire benefit would become available.
Guaranteed issue vs. other types of life insurance
When deciding if guaranteed life insurance is a good coverage option, it's important to consider other types of insurance coverage.
For example, traditional term and whole life policies can provide a larger death benefit. Term life policies pay that death benefit if the policyholder dies during their designated term of coverage. Whole life policies remain in effect indefinitely and will always pay the death benefit as long as the policy doesn't lapse. Both traditional term and whole life policies require a medical assessment, though.
Guaranteed universal life insurance is another option that offers a middle ground between a term life and whole life policy. It's guaranteed to remain in effect for life, but doesn't provide a guaranteed cash value as traditional whole life policies do. It generally also requires a medical exam.
Who is guaranteed issue life insurance good for?
Guaranteed life insurance is good for people who need a small amount of coverage and who cannot qualify for traditional life insurance that requires a medical exam.
Guaranteed life insurance for seniors
Guaranteed life insurance for seniors is an especially good option. Most older Americans above age 65 or 70 can't qualify for traditional term or whole life policies at an affordable rate. Guaranteed issue life insurance is available to these seniors. It can allow them to provide a small amount of money to beneficiaries from the insurance company to cover final expenses.
Pros and cons of guaranteed issue life insurance
There are advantages and disadvantages to guaranteed life insurance. Some of the biggest benefits include the following:
- No medical exams are required
- Almost all applicants are approved
- Even Americans who are too old for traditional whole or term life policies can typically qualify.
The biggest disadvantages include the following:
- The death benefit is usually very small
- There's often a waiting period before the full death benefit becomes available
- Policies don't accrue a cash value, unlike with traditional whole life insurance
- Not all of the best life insurance companies offer guaranteed issue life insurance.
Where can I buy the best guaranteed life insurance policies?
Many insurers offer guaranteed life insurance policies. Consumers interested in purchasing this coverage should check with several insurers and get multiple quotes to ensure they are getting a fair price for coverage.
Alternatives to guaranteed issue life insurance
Term and whole life policies are an alternative to guaranteed issue life insurance.
Term life insurance
Term life insurance traditionally requires a medical exam. Premiums are priced based on the risk of the policyholder passing away while covered.
Term life insurance remains in effect for a limited time. Terms usually last 15, 20, or 30 years. If the policyholder outlives the coverage term, no death benefit is paid.
The death benefit on a term life insurance plan may be much higher than with guaranteed life insurance, if the policyholder chooses to buy substantial coverage. But not everyone can get approved for a policy.
Whole life insurance
Whole life insurance, or permanent life insurance, remains in effect indefinitely and always pays out the death benefit as long as the policyholder continues paying premiums. Unlike guaranteed issue life insurance, it requires a medical exam. It also serves as a type of investment. It acquires a cash value over time.
FAQs
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Guaranteed life insurance is available to almost anyone who applies. No medical exam or medical history is required. The death benefit is generally relatively small. The policy may remain in effect for life or for a limited period of time. It is sometimes called final expense insurance.
Non-guaranteed life insurance is available only to qualified applicants. Insurers check the medical history of those who apply. Applicants may need to undergo a medical exam. The death benefit could be larger. Both term and whole life policies are available as non-guaranteed life insurance.
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Life insurance policies generally pay out quickly after being notified of a death. Typically, beneficiaries receive the death benefit within 60 days.
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In many cases, it is possible to have multiple life insurance policies. However, insurers usually ask applicants if they have any other coverage. Those trying to buy an unreasonable amount of insurance coverage may be denied.
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Guaranteed issue refers to a type of life insurance policy. It makes coverage available regardless of medical status. No exams are required and most often applicants applying for guaranteed life insurance do not have to answer medical questions. It has a smaller death benefit than traditional policies, and there's often a waiting period before the full death benefit becomes available.
Our Insurance Expert
Christy Bieber is a full-time personal finance and legal writer with more than a decade of experience. She has a JD from UCLA as well as a degree in English, Media and Communications with a Certificate in Business Management from the University of Rochester. In addition to writing for The Ascent and The Motley Fool, her work has also been featured regularly on MSN Money, CNBC, and USA Today. She also ghost writes textbooks, serves as a subject matter expert for online course design, and is a former college instructor.
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