Before issuing life insurance coverage, insurance providers typically require you to undergo a medical underwriting process to determine risk factors and set premiums accordingly. The process generally entails a thorough review of the applicant’s medical history. If you’re deemed high-risk, the insurer may deny you coverage altogether. This is where guaranteed issue life insurance comes into play.
Also referred to as guaranteed acceptance life insurance, guaranteed issue life insurance policy is a type of whole-life insurance coverage that does not require the customer to undergo any medical underwriting.
Who is guaranteed issue life good for?
As good as this sounds, guaranteed issue life insurance is only suitable for certain individuals with specific life insurance needs. In general, you should consider guaranteed issue life insurance if you:
- have a limited budget for life insurance
- have an underlying condition that may hinder you from accessing alternative coverage
- only need a relatively small amount of life insurance coverage, say, $25,000, to cover your final expenses
Important things to consider
Before choosing a guaranteed issue life insurance policy, you should first be aware of the following:
Age limit – Most insurance companies offer guaranteed life insurance to policyholders aged 40 to 50 years.
High premiums – Given no medical underwriting is necessary, guaranteed issue life insurance policies are high-risk in nature. It is, therefore, not unusual for the insurance company to charge high premiums on these policies.
Low coverage limits – Typical policy limits range from $10,000 to $25,000. As such, they won’t provide enough coverage to cater to additional expenses other than funeral expenses and small debts.
Cash value – One good thing about guaranteed issue life insurance is that it accumulates cash value against which you can borrow a loan. However, if you die before repaying the loan, your beneficiaries will receive the insurance payout minus the loan amount. Even if you don’t borrow a loan against your cash value, your heirs will only receive the policy’s coverage amount, excluding the cash value.
Graded death benefits – If you die within two or three years of policy inception, your beneficiaries will receive the total amount of coverage provided your death is accidental. Otherwise, the insurance company may only pay out the total premiums you contributed, plus interest.
Guaranteed Issue Life Insurance Pros and Cons
Pros of guaranteed issue life insurance include:
- Short and easy application process
- No medical examination is required
- The insurer doesn’t look at your medical history
- No health-related questions are asked
Cons of this policy include:
- High insurance premiums
- Low coverage limits
- Only accidental death within three years of policy inception can result in a total payout of the coverage amount.
Cost of Guaranteed Issue Life Insurance vs. Whole Life Insurance
The cost of a traditional whole-life insurance policy varies with factors such as age, lifestyle, health status, occupation, gender, and health history. This means that it is possible to get an affordable whole-life insurance policy by just living a healthy lifestyle. However, about 50% of Americans overestimate the cost of life insurance coverage by up to 3 times the actual price. Guaranteed issue life insurance coverage, on the other hand, costs way more than a traditional whole-life insurance policy. Therefore, only go for it if you must.
How to Get Guaranteed Issue Life Insurance
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