You've seen the ads on TV: Celebrities tell you about a life insurance policy with no medical exam. For some people, these "guaranteed issue" and "guaranteed acceptance" individual life insurance policies can be the only way to buy insurance protection.

Often marketed to the elderly, guaranteed issue individual life insurance will insure anyone who comes along, with no medical examination and without asking any medical questions. These policies should not be confused with "simplified issue" or "quick issue" individual life insurance, for which insurers will ask medical history questions but will not require an examination.

"There are some 'short form' life insurance policies that you shouldn't confuse with guaranteed issue," says Bill Schreiner, an actuary with the American Council of Life Insurers (ACLI). "For a true guaranteed issue policy, there are no medical questions — you just send your money and get insurance."

What's the catch? There are a few, says Schreiner. Most guaranteed issue life insurance policies are designed to provide for only funeral expenses, so it can be tough to find a company willing to sell a policy with a face amount of more than $15,000 to $20,000. Some insurers sell guaranteed issue policies only to folks age 50 to 85. And if you want a payment plan, such as quarterly or semi-annually, you'll likely pay more.

Also, because guaranteed issue life insurance polices do not rely on medical information to set premiums, the cost tends to be very high. Insurance companies will use medical information for other policy types, such as term life, to offer lower rates to people who can prove they are in good health.

With guaranteed issue life insurance policies, because there is no medical exam or underwriting, insurance companies have no information other than the applicant's age and gender on which to base the premiums.

The high premiums, combined with a low face amount for the death benefit, make guaranteed issue life insurance a less desirable option for relatively healthy individuals. For some of these policies, you could end up paying more in premiums than your beneficiaries will ever receive from the insurance company.

Make sure you do the math to figure out how much you'll have paid out into your guaranteed issue policy in five, 10 or 15 years. Don't assume that your agent will tell you that you may pay more in premiums than your beneficiaries will get back in death benefit; very few states have laws that require this disclosure.

The National Association of Insurance Commissioners (NAIC) has developed a model law that states can use regarding disclosures for small face amount policies, such as guaranteed issue policies. The model law recommends that insurers issuing small face amount policies "clearly and prominently disclose . . . the length of time until the cumulative policy premiums paid may exceed the face amount of the policy."

The NAIC model law also includes a provision that would let you cancel the policy within 10 days for a full refund. Some states already have laws that require "free look" periods for life insurance. So, if you buy a guaranteed issue policy and have instant regrets, you may be able to back out of it if you act quickly.

The first couple years

The final catch, according to Schreiner of the ACLI, is a concept called "graded benefits." Introduced to avoid insurance fraud, graded benefits clauses in guaranteed issue life insurance policies allow the insurer to refund a policy's premiums, plus interest, instead of paying the death benefit if the insured dies within two to three years after buying the insurance.

"Graded benefit periods prevent people in hospitals from signing up while on their deathbeds," says Schreiner. Insurers couldn't offer guaranteed issue policies without the protection these clauses provide, he says.

Some policies will pay out the full face amount during the graded benefits period in the case of an accidental death, but not all guaranteed issue policies offer this feature and the definition of "accidental causes" is usually quite limited.

In general, if you can buy life insurance after answering medical history questions or by undergoing a physical examination, you'll probably end up paying much less for a greater death benefit than you would with a guaranteed issue life insurance policy.

If you've been turned away from every other policy because of your age or your health, and you really need to pass on a benefit to your beneficiaries, guaranteed issue individual life insurance can be a last resort.