It is nearly impossible to listen to the radio or watch a ballgame on television without being inundated with commercials advertising Guaranteed issue life insurance. As a result of all this advertising, you may be wondering if the product is it’s worth the price. Well, keep reading. All of your questions about guaranteed issue life insurance are answered in this article.
Some Life Insurance Questions
Specifically, we will address the following questions:
- What is guaranteed life insurance?
- What are the pro’s and con’s of guaranteed life insurance?
- What is involved in getting guaranteed life insurance?
- Are guaranteed issue policies worth the price?
What is Guaranteed Life Insurance?
Guaranteed issue life insurance is a segment of the “Final Expense” life insurance market.
Final Expense insurance is primarily life insurance that is used to cover funeral and burial expenses. These policies are usually between $5000-$50000-dollar benefit amounts.
In addition to covering funeral and burial expenses, seniors often use them to leave a legacy gift to a loved one.
These policies are offered on a “simplified issue” basis. “Simplified issue” means that there is no medical exam and very easy underwriting compared to traditionally underwritten term insurance life insurance.
Guaranteed issue policies, unlike simplified issue policies that have some underwriting via medical questions and prescription checks, have no medical questions.
If you are a U.S. citizen and meet the minimum age requirement (this depends on the company), you qualify.
What Are the Positives Associated with Guaranteed Issue Policies?
- You Can’t be turned down by underwriting.
- There is no medical exam or medical records involved.
The positives of guaranteed issue policies are the ease and speed of issue. After all, being that everybody who meets the age and citizenship requirement is accepted is a definite positive. This is especially true if you do not have other alternatives. Since there is no medical exam or doctors reports to hold things up, policies can be are in- force almost instantly.
What are the Negatives of Guaranteed Issue Policies?
- Graded benefit payout schedule
- Cost relative to alternative policies
Because you can receive guaranteed life insurance right up to the very end of your life, the insurance companies protect themselves in two ways. First, they pay out the death benefit on a graded basis, and second, they charge a higher premium than alternate policies.
A graded death benefit means that the beneficiary does not get the full benefit if the insured dies within the graded period. For example, if you purchased a policy with a 25/50/100 three year grading provision and you were to pass prior to the second anniversary of the policy your beneficiary would receive 25% of the face amount benefit. Whereas, if you were to die after the third anniversary of the policy, your beneficiary would receive all 100%.
If the insured dies in the first year of the graded policy, the beneficiary would only receive the premiums paid to that point with interest (as stipulated in the policy).
The exception to this rule, in many cases, is accidental death. In this case the full benefit would be paid out.
The other “negative” consideration is cost. Guaranteed policies cost more per benefit dollar than traditional “final expense” policies. Now if life insurance is needed and the applicant can’t qualify for an alternative, then guaranteed issue is the only choice. However, the reality is that many, if not most, guaranteed policies would have qualified for a final expense policy that was not “graded” and cost less.
What’s Involved in Obtaining Guaranteed Life Insurance?
You can get one of these policies in a number of ways. With all the advertising done around this product, you could easily just “call the number on your screen” as the television ads say.
However, it’s advisable to speak with an independent agent instead of going straight to the carrier through an advertisement. By taking the independent route, you will get the chance to discuss if there are any better options available to you.
In either case, if you decide to go with a guaranteed policy, all you will need is a checking account to have the payment drawn from and your signature. The whole process can take less than 15 or 20 minutes from start to finish.
Are Guaranteed Life Insurance Policies Worth it?
This question can only be answered in the context of your individual situation.
Generally, I would say that a guaranteed life insurance policy makes sense only when all other avenues have been explored ruled out.
The graded benefit provisions and the premium to benefit ratio make guaranteed coverage the least consumer friendly of all life insurance policies.
If that’s really the case, “then why is it so popular?”
The answer is that it’s profitable to the carriers, so advertise like crazy. If you watch television you know the names Mutual of Omaha, AARP, Colonial Penn, AIG, …the list seems endless.
While guaranteed policies have serious drawbacks …they have a legitimate place in the life insurance market.
Nonetheless, it is strongly encouraged that you to use your independent agent to explore other options first. Many, if not most, of the guaranteed issue policies sold could have qualified for immediate full benefit at a better price. Just like the guaranteed policies the rates are fixed for life and no exam is needed.
James Tobin, CFP is the founder of the Life Insurance Help Desk. In addition to providing expertise on life insurance matters, he teaches ESL and is a news junkie. Mr. Tobin reside with his wife in Norwalk, CT