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Insurance Life Insurance

How Does Guaranteed Issue Life Insurance Work?

Choosing a life insurance company and policy is vital to protect the people you care about from a potential financial disaster. If you pass away unexpectedly, any loved ones who depend on you for living expenses could face financial hardship in the event that you don’t have a life insurance policy.

Because life insurance is so important to ensure your loved ones are cared for, it can be especially frustrating if you are denied. Unfortunately, many people have trouble qualifying for life insurance because traditional policies are underwritten.

This means that an underwriter looks at your health history and assesses the risk of you passing away while your policy is still in effect. If you have a history of serious illnesses or other health problems, the underwriter may decide the risk is too great and you won’t be approved.

The good news is that you have another option: guaranteed life insurance, also commonly referred to as guaranteed issue life insurance. As the name suggests, these policies are guaranteed to be issued to you if you apply for one. This means you can definitely get covered but there are many things to consider to decide if guaranteed issue life insurance is right for you.

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What are Guaranteed Acceptance Life Insurance Policies?

Guaranteed issue life insurance policies are the easiest life insurance policies to gain approval for.

Unlike with traditional life insurance, typically no medical exam is required before you purchase coverage. However, you’ll still be required to provide answer some basic health questions, including information about your age and health. While insurers won’t deny you coverage based on these things – in most situations – you may have to pay a little more for your policy if you’re very old or sick.

Limited Coverage

Unfortunately, since life insurance companies are taking a big risk, they protect themselves in other ways. One of those ways is limiting the death benefit (the amount of money your beneficiaries will receive).

The amount of coverage you’re able to buy is typically going to be much lower than what you would be able to obtain with a more traditional policy. In fact, many guaranteed issue policies provide only enough cash value for your family to pay for your funeral costs, burial expenses, and other final expenses.

Graded Death Benefits

Another way that many insurers protect themselves with guaranteed issue life policies is to offer the coverage with a graded death benefit.

When your policy has a graded benefit, your beneficiaries wouldn’t get the full amount of the death benefit immediately after you buy coverage. Instead, eligibility for the full death benefit is phased in.

For example, say you had a coverage amount of $20,000. Your beneficiaries might be eligible to receive just 25 percent of that money, or $5,000, in the first year after the coverage is in effect. After year two, your beneficiaries may become eligible for 50 percent, or $10,000, and after year three, they may be eligible for 75 percent, or $15,000. Only after a full four years would they receive the full death benefit amount if something were to happen to you.

Graded death benefits aren’t the same with all insurers – some have different schedules for when your beneficiaries will become eligible for the full death benefit. This makes it very important to shop around to find an insurer to cover your family as soon as possible. You and your loved ones also need to understand that if you die quickly, the beneficiaries may receive very little money and the higher premiums you pay for the coverage may not be worth it.

Who Offers Guaranteed Acceptance Life Insurance Policies?

In most cases, guaranteed issue life insurance policies are issued by companies that also offer other policies as well. This is helpful when you shop for because you can talk with your insurance agent about your coverage needs and your medical history and he or she can help you to explore all your options. If traditional coverage would suit you better and you may be eligible, your agent may be able to help you find a policy so you can avoid a typically less beneficial guarenteed policy. 

Guaranteed issue life insurance policies aren’t the best choice for everyone because of the higher premiums, the smaller cap on the death benefit amount, and because many policies do not even pay the full benefit right away. 

So how do you know if a guaranteed issue life insurance policy is a good option? You need to consider your individual situation. If you are older or have a serious illness, guaranteed issue policies may be the only kind of coverage you are eligible for. 

For example, people who have had cancer, heart disease, a stroke, or who have been diagnosed with terminal illnesses may only be eligible for guaranteed issue coverage.

If guaranteed issue coverage is the only kind of insurance you can obtain, buying a policy is often better than leaving your family with no coverage at all. Even if the death benefit isn’t high, it’s better to provide your family with some money rather than no money – especially given that funeral and burial costs can run into the thousands.

>> Read More: Burial and funeral insurance

However, if you’re fairly healthy and can qualify for a traditional life insurance policy, you would usually be better off by opening up one of those. You may be able to get lower premiums, a higher death benefit, and a policy that doesn’t have graded death benefits so your family is protected sooner.

If you are unsure what your best option is, you should shop for guaranteed issue policies as well as more traditional term life and whole life insurance policies. An insurance agent should be able to help you find the right policy and it’s also easy to compare your coverage options online.

Bottom Line

When you shop for life insurance, finding the right coverage can be very stressful for anyone with preexisting health issues. Guaranteed issue policies provide a reasonable alternative to a more traditional policy if you’ve been denied for coverage and you’re worried that you won’t be around much longer to take care of your family. 

Just be sure to shop around for multiple life insurance quotes and understand all your coverage options before you make a decision.