Guaranteed issue life insurance, or guaranteed acceptance life insurance, is a life-insurance policy with no health qualifications.
Breaking Down Guaranteed Issue Life Insurance
Guaranteed issue life insurance, like all life insurance, pays cash to a named beneficiary upon the death of the insured. The key difference is that with guaranteed issue life insurance a company cannot deny an applicant coverage as long as that applicant can afford the premiums. Because guaranteed issue life insurance policies are available to people with no medical underwriting, they charge higher premiums for lower payouts than conventional policies. For that reason, guaranteed issue life insurance tends to attract applicants with health histories that preclude their enrolling in better policies and who can’t purchase life insurance through their employers.
Besides charging more for less, insurance companies usually make up for the increased risk of insuring applicants who wouldn’t qualify for better plans by offering graded benefits. Graded benefits do not pay out if the insured dies within the first one or two years of the policy. The insurance company typically just refunds the premiums instead.
Though applicants to guaranteed issue life insurance don’t have to answer health questions, their age, sex, and state of residence factor into the terms of their coverage. And many guaranteed issue policies don’t cover people over 100 years old.
Pros and Cons of Guaranteed Issue Life Insurance
Conventional term life insurance policies commonly pay out as much as $1 million or more. Guaranteed issue life insurance pays much less. Many policies top out at $10,000, though others go higher. This difference in scale between the two types of life insurance affects their function. A conventional policy is more likely to keep beneficiaries solvent long enough to reorganize their finances after the loss of a breadwinner. Most guaranteed issue policies pay little more than funeral and burial expenses.
Many elderly applicants and applicants with health issues believe they could never qualify for a term life policy that requires medical underwriting. But that often isn’t the case. Even applicants pessimistic about their chances ought to consider applying for conventional term life insurance through several different companies. The terms they offer, if the applicant qualifies, may not be ideal, but they may still beat the high premiums and low payouts of guaranteed life insurance policies.
Guaranteed issue policies are useful, but only to applicants who don’t qualify for conventional policies and who have a chance to live past the graded benefits period of one or two years.
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