Guaranteed issue life insurance is a form of “no medical exam life insurance“. Just like it sounds from the name, a life insurance company can not deny a policy if someone applies for a guaranteed issue policy. While this sounds great, there are some very important catches to this type of policy that you need to know before you purchase it. For instance, this is the most expensive type of life insurance on the market. It really should only be purchased by people who do not qualify for any other type of life insurance because of their poor health. A guaranteed issue policy is sometimes referred to as a “GI” life insurance policy.
Please note that a guaranteed issue policy is different than a guaranteed insurability rider, or a term conversion, both of which ensure that you can add to or prolong a life insurance policy regardless of health. The difference between a guaranteed issue policy and the guaranteed insurability rider, and term conversion, is that the GI rider and term conversion require the purchase of a tradition policy with a standard health rating first. The guaranteed issue insurance is available to people who do not have existing life insurance with a term conversion feature or GI rider.
There is no Underwriting
Because the life insurance company has no choice but to approve the policy, a guaranteed issue policy is void of any underwriting or health rating. The policy can be issued very quickly and there is less paperwork than a traditional application requires, which can be quite onerous and must be filled out very precisely. Essentially you only need to prove your age and identity to receive your policy. To be clear, this doesn’t mean that a guaranteed issue policy is right for you. Read on to understand the trade-offs to purchasing a policy without a medical exam or underwriting.
Transaction can be Done Online
Because there is no underwriting and a very limited application process, most of the work can be done online. This makes it very easy to purchase a guaranteed issue policy for consumers. It is also very easy to quote accurately since the health condition of the insured person is not material to the price.
Why a Guaranteed Issue Policy is a Last Resort
A guaranteed issue policy should not be your go-to life insurance product. You should always try to apply for a standard policy, or even a policy with a substandard health rating. Here’s why:
It is the Most Expensive Type of Life Insurance
Because there is no underwriting, a life insurance company has no way to judge how likely a client is to die in any policy year. Furthermore, because it is more expensive than a standard policy, the only people who rationally pursue GI coverage are those who are in the worst health. To a life insurance company, this is known as negative selection. The people who are most likely to purchase guaranteed insurance are the people most likely to have a claim. Because this is the highest risk pool that a life insurance company covers, it is by far the most expensive type of policy.
A term policy will generally cost as much as the face amount within 10 years, and a whole life policy is even more expensive. Many of the people who seek a guaranteed issue policy are those with a serious health complication who have reason to believe that they may not have a long life left to live.
Term and Whole Life are Both Available
When it comes to GI insurance, a term policy is usually the only affordable option for most people. This isn’t necessarily a bad thing if you were planning on buying a term policy anyway. For most people seeking this type of policy, term insurance makes the most sense anyway. There are some specific types of health complications that both have a high chance of causing mortality and a decent chance of a longer term survival, and this grey area is the most difficult to find the right coverage. To understand whether you should pursue term of whole life guaranteed issue insurance, you need to understand your health situation and odds or long term survival.
If you have an aggressive form of cancer, it probably does not make sense to purchase whole life, especially if your odds of surviving 5 years are low. If you beat the cancer, you can reapply for a standard policy when the cancer is in remission. If you don’t, you want to pay the life insurance company as little as possible.
If you have an illness such as COPD, or heart disease, you may live a long time but be unable to apply for a life insurance policy that requires underwriting. In cases such as these, you may want to consider whole life GI insurance because you may need the coverage for a long time. Only you and your Dr. can determine your odds, and you should compare prices of both policy types to understand what you can afford.
Can Not Have a Claim in the First 2 Years and Return of Premium
Usually a guaranteed issue policy will not pay a claim if a death occurs during the first two years of the policy. In other words, the insured person needs to live at least 2 years after the policy purchase in order for the policy to pay out. If the insured person dies within the first 2 years, a company will often refund all of the premium paid and in addition to that, pay interest.
The 2 year rule with return of premium protects both the insurance company from people buying policies on their death beds, and it protects the consumer with a premium return during that period. The downside is that if the insured person dies within the first 2 years there is no life insurance coverage in place.
Low Face Amount Limits- $15,000 to $50,000
Because this is the highest risk type of policy for a life insurance company, there are severe limitations on the size of the death benefit. Usually a company will limit the size of the face amount to $25,000, but it will vary by company. Most companies will put a limit of between $15,000 and $50,000 on the death benefit.
While it is nice to get the life insurance coverage if you don’t qualify for a standard policy, the low limits don’t practically provide much in form of security beyond paying for the funeral and maybe paying some debts.
You Can Buy From Multiple Companies at the Same Time
If you can afford to, you are allowed to buy coverage from multiple companies at the same time. If the insurance company asks about existing coverage that you own, or if you are applying for other coverage at the same time, make sure that you tell the truth. If you are found out later to by lying the insurance company can deny the claim if the information would have changed their decision to issue the policy, based upon their documented underwriting procedures.
So is a guaranteed issue life insurance policy right for you? Only you can answer with the help of your doctor. Make sure that you get quotes to compare prices, and make an informed decision about whether the high price is worth the coverage. Do a “break even analysis” and figure out what year the total premiums paid are equal to the death benefit, because you don’t want to pay more in premium than you get in coverage. Make sure you understand all the rules and stipulations prior to making a purchase. The good news, no matter what your health is you have life insurance options available to you! Life Ant can help you get a guaranteed issue policy. Enter your zip code to get started.