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Various kinds of life insurance policies are available. The type of life insurance coverage you require to safeguard your family depends on your individual circumstances.
The two most basic types of life insurance are term, which offers death benefits for a specified period of time, generally 10, 20 or 30 years, and permanent, which pays a death benefit for the rest of your life. Guaranteed life insurance provides coverage to people who would not otherwise be eligible; in other words, you are guaranteed coverage regardless of your health status.
What Is Guaranteed Issue Life Insurance?
Guaranteed issue life insurance is a form of a permanent life insurance policy with lower policy values ranging from $2,000 to $25,000 and is meant to cover end-of-life expenses.
Life insurance with a guaranteed issue is, as the name implies, a life insurance policy that will be given to you regardless of any health issues you may be experiencing. Guaranteed life insurance policies are typically provided for a lower value than standard life insurance policies, and they are less expensive than traditional life insurance policies.
Who Needs Guaranteed Life Insurance?
Guaranteed issue life insurance policies are suitable for people who have health difficulties, older adults or those who may not be approved by other companies that sell traditional life insurance policies. You can obtain a policy in a short period of time without having to undergo a physical examination.
The guaranteed life insurance policy may also be beneficial to seniors who are concerned about leaving their heirs to pay for their final expenses. Many seniors are on limited budgets and cannot afford an expensive life insurance policy. Generally, guaranteed issue life insurance is less expensive than a traditional term or permanent life insurance policy.
In addition, if you are not concerned about leaving an inheritance for your heirs and only want to have enough money to pay for a funeral and other end-of-life costs, the guaranteed-issue life insurance policy generally pays out sufficiently to cover these costs.
How Do Life Insurance Companies Determine Your Rates?
When establishing your eligibility for a life insurance policy, insurance companies take several variables into consideration. For different age and activity categories, they have created standards to use in calculating coverage rates.
For an insurance company, risk is defined as the assumption that the amount of money it collects from you will be more profitable than the amount it may have to pay for you if you are injured or die after its policy approval.
This explains why life insurance prices are higher for certain age groups or for people who engage in high-risk hobbies such as skydiving. Generally speaking, people older than 50 and those who have particular medical conditions or lead a certain lifestyle are more likely to have higher insurance rates.
How Does Guaranteed Issue Life Insurance Work?
With guaranteed-issue life insurance, the insurance company guarantees that it will issue you a policy, provided that you are within the acceptable age range when you apply for the insurance coverage regardless of your health. The normal age of eligibility is between 50 and 80 years old. Some insurance providers may still offer guaranteed-issue policies to people who are older than this, but you will have fewer options.
As a result of these age restrictions and without the information from a physical exam, it is easy to understand why insurance companies target this age group with guaranteed-issue plans.
Guaranteed-issue life insurance policies are ideal for people who have no other options because of their health or who cannot afford any other options.
Most insurers won't issue policies to individuals they consider to be too high of a risk. Some health conditions that can make you ineligible for a traditional term or permanent life insurance policy include:
- Organ donation
- Dialysis
- Terminal illness
- Cancer
- Residing in a nursing home
- Hospice patient
- AIDS or HIV infection
- Other chronic illnesses or diseases
Benefits of Guaranteed Life Insurance
One of the most significant advantages of guaranteed life insurance is that it is possible to be accepted even if you have been rejected coverage for other types of life insurance in the past. Despite the death benefit being less than that of term life or permanent life insurance policy, you will usually have enough to meet final expenses and leave your family without financial stress.
Even if you have health concerns, you will not be denied coverage because of preexisting conditions or have to undergo a health examination. You can obtain guaranteed life insurance right away, allowing you to rest easier knowing that your insurance policy will take care of your final expenses.
Another advantage of guaranteed life insurance is that it is offered by a large number of insurance companies, so it should not be difficult to locate an insurance company that will provide you with a policy. Before buying guaranteed life insurance, you should obtain many quotes and compare them to determine which one offers the greatest value.
Drawbacks of Guaranteed Life Insurance
A life insurance company cannot determine the degree of your health (how healthy or ill you are) by administering a medical test or asking questions. Because of the company’s uncertainty of your health status, you can expect to pay higher-than-average rates for a guaranteed life insurance policy when compared to other types of life insurance.
The payoff on guaranteed life insurance is less than the payout on a standard term or permanent life insurance policy because it is intended to cover your final expenses rather than provide a cash benefit. There could be a lengthy waiting period as well.
Another significant drawback is that guaranteed life insurance does not provide a cash benefit. If you were hoping to use your life insurance policy to build a nest egg for retirement or possibly to pay for your child's college tuition, this may not be the best life insurance for your situation.
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Is Guaranteed-Issue Life Insurance Right for You?
If you only intend to use the death benefit to pay for final expenses, guaranteed-issue insurance should provide a sufficient payout. A typical funeral, for example, costs approximately $10,000 in fees and expenses.
A guaranteed life insurance policy, on the other hand, is not the best option if you are considering obtaining life insurance with the intention of using the cash value benefit to pay off your mortgage or send your children to college after you die.
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Frequently Asked Questions
What is the major problem with guaranteed-issue life insurance?
Along with a higher premium cost, one of the most significant disadvantages of guaranteed-issue life insurance is that your beneficiaries would not get the full death benefit until your policy has been in effect for a stated amount of time (usually one to two years, depending on the life insurance provider).
What’s the maximum amount of a guaranteed-issue life insurance policy?
The maximum amount of guaranteed-issue life insurance you can buy will vary from company to company. However, most companies do not offer coverage levels greater than $25,000. If you need more coverage than this, you may want to consider another form of life insurance.
What age groups are eligible for guaranteed life insurance policies?
Many life insurance providers have age limits for their guaranteed life insurance policies. The age limit is generally somewhere between 50 and 85, although some companies offer policies to younger people.
Methodology
Benzinga crafted a specific methodology to rank life insurance. To see a comprehensive breakdown of our methodology, please visit our Life Insurance Methodology page.
About Janet Hunt, Insurance Agent
Janet has been working in, and writing about, the insurance industry for over 20 years.