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The basics of guaranteed issue life insurance

"A true guaranteed issue policy doesn't require you to answer any medical questions."

You've seen the ads on TV: Celebrities tell you about a life insurance policy with no medical exam. For some, "guaranteed issue" and "guaranteed acceptance" individual life insurance may be the only way to acquire coverage.

Often marketed to the elderly and those with serious medical conditions, guaranteed issue individual life insurance insures anyone with no medical examination and few or no medical questions. You shouldn't confuse their policies with "simplified issue" or "quick issue" individual life insurance, which ask medical questions but don't require an examination.

"There are some 'easy to get' life insurance policies that are often confused with guaranteed issue," says Paul Graham, senior vice president of insurance regulation and chief actuary with the American Council of Life Insurers (ACLI). "A true guaranteed issue policy doesn't require you to answer any medical questions."

 

What to know about guaranteed issue life insurance

Guaranteed issue life insurance may sound like the perfect plan. You get life insurance and don't have to worry about passing a medical exam. However, let's take a walk through what you need to know so you can decide whether these types of life insurance policies are right for you.

Guaranteed issue policies have small dollar amounts

Insurance companies sell guaranteed issue policies without medical underwriting, but there are limitations to those plans.

"Most of these policies have small face values, usually less than $20,000. This is because guaranteed issue policies are designed for a specific purpose, which is to pay for funeral expenses. Additionally, some insurers may offer guaranteed issue policies only to a small universe of consumers, such as those between ages 50 and 85," he says.

Offering policies with smaller payouts protect the health insurance company from paying out huge amounts to a policy without medical exams. 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.

This also means that people who take out guaranteed issue policies should understand the payouts will pale in comparison to term life or even permanent life insurance. Guaranteed issue life insurance might not be right for you if you want to leave behind money to provide for mortgage payments and the care of a loved one after you die.

Guaranteed life policies may cost more

The cost of the plans is usually high because guaranteed issue life insurance policies do not rely on medical information to set premiums. So, insurers charge you more because they feel they're taking on more risk. If you find you need a payment plan, such as quarterly or semi-annual bills, you'll likely pay more.

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 receive upon your death.

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.

Graded death benefits limit early payouts

Introduced to reduce insurance fraud, a graded death benefit policy pays out only a portion of the death benefit if you die within the first several years of the policy. Check the policy details for a schedule of how the benefit amount is graded.

"All of these limitations help prevent adverse selection, (such as) people that know that they are dying soon will buy as much insurance as they can, and these limitations limit the financial risk to the insurer of that occurring," says Graham

Insurers couldn't offer guaranteed issue policies without this protection, he says.

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

Overall, even if you have some health problems, you will likely pay less for an underwritten policy than a guaranteed issue policy.

Shop around for guaranteed life insurance

Guaranteed issue individual life insurance can be a last resort if you've been turned away from every other policy because of your age or your health. These types of plans are not for everyone, but they're an option if you've been turned down for other policies and want to leave something behind to pay for your final expenses.

Some life insurance companies that offer guaranteed issue life insurance are:

  • Affordable Life USA
  • AIG
  • American Family Mutual Insurance
  • Assurance
  • Banker's Life
  • Gerber Life Insurance
  • Globe Life Insurance
  • Navy Mutual
  • New York Life Direct
  • Prudential
  • Quilt
  • SelectQuote

If you decide to get a guaranteed issue policy, make sure you shop around to find the best deal for your situation. Decide what you're willing to spend and what you want out of the policy and then compare multiple policies to see what's right for you.  Check out consumer ratings from our Best Life Insurance Companies survey.

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