Guaranteed Issue Life Insurance: Pros And Cons

 

Life insurance is a contract between you and an insurance company that promises to pay a lump sum of money to your beneficiaries if you die during the term of the policy. Life insurance can help your loved ones cover your funeral costs, pay off your debts, replace your income, or achieve other financial goals.

But what if you have health problems that make it hard or impossible to qualify for a regular life insurance policy? That’s where guaranteed issue life insurance comes in. This type of policy is a form of whole life insurance that does not require you to answer any health questions, undergo a medical exam, or allow an insurance company to review your medical records. You can get coverage regardless of your health status or history.

Guaranteed issue life insurance can be a lifesaver for people who have serious health conditions that keep them from buying other types of life insurance. But it also has some drawbacks, such as higher cost, lower coverage, and a waiting period. In this article, we’ll explain what guaranteed issue life insurance is, how it works, and how it can benefit you. We’ll also compare its pros and cons with other types of life insurance and help you decide if it’s right for you.

How Guaranteed Issue Life Insurance Works

Guaranteed issue life insurance is different from other types of life insurance in several ways. Here are some of them:

• Eligibility. To qualify for guaranteed issue life insurance, you don’t have to answer any health questions or undergo any medical tests. You just have to be within the allowed age range, which is usually between 50 and 80 years old. Some insurers may also have other eligibility criteria, such as being a U.S. citizen or resident.
• Coverage. Guaranteed issue life insurance provides a small death benefit that ranges from $2,000 to $25,000, depending on the insurer and the policy. The death benefit is paid to your beneficiaries if you die after the waiting period (see below). The death benefit does not decrease over time, unlike some other types of life insurance. The policy also builds cash value over time, which you can borrow against or withdraw in some cases.
• Cost. Guaranteed issue life insurance is more expensive than other types of life insurance for the same amount of coverage. This is because the insurer takes on more risk by accepting you without knowing your health status or history. The cost of guaranteed issue life insurance depends on your age, gender, location, death benefit amount, and insurer. According to Investopedia, the average monthly premium for a 65-year-old male for a $10,000 guaranteed issue policy is $75, while the average monthly premium for a 65-year-old female for the same policy is $56.

Benefits Of Guaranteed Issue Life Insurance

Despite its higher cost and lower coverage, guaranteed issue life insurance has some advantages that may appeal to some people. Here are some of them:

• Being able to get coverage regardless of your health status or history. This is the main benefit of guaranteed issue life insurance. If you have serious health conditions that prevent you from getting other types of life insurance, such as cancer, heart disease, diabetes, or HIV/AIDS, guaranteed issue life insurance can provide you with some protection and peace of mind. You don’t have to worry about being rejected or charged higher premiums because of your health.
• Being able to avoid medical exams or health questions. Another benefit of guaranteed issue life insurance is that you don’t have to go through any medical exams or answer any health questions to get coverage. This can save you time and hassle and spare you from disclosing sensitive information about your health. You can apply for guaranteed issue life insurance online or over the phone in minutes.
• Having peace of mind that your beneficiaries will receive a lump sum payout if you die. Guaranteed issue life insurance can also give you peace of mind that your beneficiaries will receive a lump sum payout if you die after the waiting period (see below). This payout can help them cover your funeral costs, pay off your debts, replace your income, or achieve other financial goals.
• Having the option to access the cash value of your policy in some cases. Some guaranteed issue life insurance policies also build cash value over time, which is a portion of your premiums that grows tax-deferred and can be used for any purpose. You can borrow against or withdraw from the cash value of your policy in some cases, such as to pay for medical expenses, supplement your retirement income, or fund a large purchase. However, doing so will reduce your death benefit and may incur fees or taxes.

Drawbacks Of Guaranteed Issue Life Insurance

Guaranteed issue life insurance is not a perfect solution, however. It also has some drawbacks that may outweigh its benefits for some people. Here are some of them:

• Paying more than other types of life insurance for the same amount of coverage. This is the biggest downside of guaranteed issue life insurance. You have to pay a lot more for a small death benefit than you would for other types of life insurance with a larger death benefit. For example, according to NerdWallet, a 65-year-old male could pay $75 per month for a $10,000 guaranteed issue policy, or $40 per month for a $100,000 term life policy. That’s a difference of $35 per month, or $8,400 over 20 years.
• Having a lower death benefit than other types of life insurance. Another drawback of guaranteed issue life insurance is that you have a lower death benefit than other types of life insurance. The maximum death benefit you can get from guaranteed issue life insurance is usually $25,000, which may not be enough to meet your needs or goals. For example, if you have dependents who rely on your income or you want to leave a legacy for your heirs, you may need a larger death benefit than what guaranteed issue life insurance offers.
• Having a waiting period that limits the payout if you die within the first few years. Another drawback of guaranteed issue life insurance is that it has a waiting period that limits the payout if you die within the first few years of the policy. The waiting period is usually two or three years, depending on the insurer and the policy. If you die during the waiting period from natural causes, such as illness or old age, your beneficiaries will not receive the full death benefit. Instead, they will receive only a percentage of the premiums you paid into the policy plus interest, usually at a rate of 10%. If you die during the waiting period from accidental causes, such as a car crash or a fall, your beneficiaries will receive the full death benefit.
• Having limited choices of insurers and policies. As mentioned earlier, guaranteed issue life insurance is not widely offered by many insurers, and those that do offer it may have different terms and conditions for it. This means you have fewer options to compare and shop for guaranteed issue life insurance policies than for other types of life insurance policies. You may also have trouble finding a guaranteed issue life insurance policy that matches your desired death benefit amount or policy features.

Alternatives To Guaranteed Issue Life Insurance

If you’re not convinced that guaranteed issue life insurance is right for you, don’t worry. There are other options that can provide similar or better benefits than guaranteed issue life insurance. Here are some of them:

• Buying a simplified issue life insurance policy that requires only a few health questions. If you have some health issues but not serious ones that make you uninsurable, you can consider buying a simplified issue life insurance policy. This type of policy is also a form of whole life insurance that does not require a medical exam, but it does require you to answer a few health questions. Depending on your answers, you may qualify for coverage with lower premiums and higher death benefits than guaranteed issue life insurance.
• Buying a final expense or burial insurance policy that covers your funeral costs. If you want to cover your funeral costs and leave some money for your loved ones, you can consider buying a final expense or burial insurance policy. This type of policy is also a form of whole life insurance that does not require a medical exam or health questions. It provides a small death benefit that ranges from $2,000 to $50,000, depending on the insurer and the policy. It usually has no waiting period and pays out immediately if you die.
• Buying a group life insurance policy through your employer or association. If you have access to a group life insurance policy through your employer or association, such as AARP or AAA, you can consider buying it. This type of policy is usually cheaper and easier to get than individual life insurance policies because the insurer spreads the risk among many people. It may also offer higher coverage and lower premiums than guaranteed issue life insurance.

Conclusion

Guaranteed issue life insurance is a type of whole life insurance that does not require medical exams or health questions. It provides coverage regardless of your health status or history. It can be a lifesaver for people who have serious health conditions that keep them from buying other types of life insurance.

But it also has some drawbacks, such as higher cost, lower coverage, and a waiting period. Before you buy guaranteed issue life insurance, you should weigh its pros and cons and compare it with other types of life insurance. You should also shop around for quotes from different insurers and consult a financial advisor if needed.

Life insurance is a personal decision that depends on your needs, goals, and budget. Guaranteed issue life insurance may be a good option for some people, but not for others. The important thing is to find a policy that gives you peace of mind and protects your loved ones.