Guaranteed issue life insurance offers coverage without a medical exam. If you’re not familiar with how life insurance works, most providers will determine who qualifies for life insurance — and how much coverage will cost — based on age and health. Insurers don’t usually take your word for it. Part of the application process involves a detailed medical questionnaire and health exam to verify.
Some individuals with chronic health conditions may not even be able to find coverage at any cost. If you’re unable to obtain a policy because of a pre-existing condition such as heart disease or diabetes, guaranteed acceptance life insurance could be a solution.
How Guaranteed Issue Life Insurance Works
In a traditional life insurance policy, the applicant will need to complete a questionnaire which includes questions about medical history and lifestyle habits such as whether they smoke or exercise. They’ll likely need to have a blood test and medical exam for the insurance underwriter to review.
The underwriter’s job is to determine the applicant’s risk level and assign a rating class (based on the information provided and medical exam). The rating determines whether the applicant is approved for life insurance coverage and sets the insurance policy’s premium. Younger, healthy applicants usually get the best rates. Older individuals or those with health challenges can expect to pay more — or even get rejected.
Guaranteed issue life insurance can be considered a “no questions asked” type of policy. You won’t have to answer questions about your health or lifestyle habits, nor will you need to provide medical records or complete a medical exam. It’s a good option for high-risk individuals. Also known as guaranteed acceptance, the policies are often structured as whole life insurance, meaning once you’re approved, there is no term or expiration date as long as you continue to pay your premiums.
Where Does Guaranteed Issue Fall Short?
Although you probably won’t be turned down for a guaranteed issue policy (even if you’re high risk or terminally ill) there are some important things to keep in mind. A guaranteed issue life insurance application asks less questions but comes with higher premiums, less coverage and often, a waiting period.
The typical guaranteed issue policy’s death benefit maxes out at $25,000. In comparison, a term or permanent policy is available with a six to seven-figure death benefit. The smaller death benefit may not cover much more than end-of-life expenses such as a funeral, some debts or medical bills.
The biggest sticking point to guaranteed acceptance life insurance could be the waiting period. Guaranteed issue policies come with graded death benefits. Although you’re practically assured a policy, you’ll need to keep it in force for at least two years before your beneficiaries can receive the full death benefit amount.
Should you pass away before the two-year mark, your beneficiaries receive a refund of the premiums you paid instead of a death benefit. The refund is generally 110% of the premiums paid. If you spent a total of $600 in premiums for a policy with a $10,000 death benefit, passing away before the policy’s two years means your beneficiaries will receive $660 instead of the $10,000.
Alternatives to Guaranteed Issue
Although guaranteed issue life insurance has its positives, the long waiting period and smaller limits can be less than beneficial. Before you sign up, consider shopping around for a standard policy first.
Each insurance provider has its own underwriting requirements — some stricter than others when it comes to health conditions. If you smoke or have a complicated medical history, shopping around for a standard life insurance policy could help you find coverage with higher limits than guaranteed issue coverage. For example, John Hancock and Fidelity Life are a couple of insurance companies that offer life insurance with allowances for diabetics.
Guaranteed Issue vs Simplified Issue
A simplified issue life insurance policy may be an alternative if you’re a moderate-risk individual, such as 50+ but in good health. Simplified issue applications will ask some medical-related questions but typically don’t require a health exam. While a guaranteed issue policy doesn’t probe into your health at all, the death benefit limit tends to be lower. Simplified issue policies often allow as much as $100,000 and may have lower premiums than guaranteed issue life insurance.
When to Buy a Guaranteed Issue Policy
Turn to guaranteed issue life insurance when you can’t buy regular or simplified-issue life insurance anywhere else. Likely scenarios include someone who is 50 or older, is terminally ill or has a medical condition that disqualifies them from other types of life insurance coverage. You’ll pay more in premiums, but you will be able to provide your beneficiaries with some funding for end-of-life expenses.
The Bottom Line
The reality is, the best time to buy life insurance is when you need it the least — when you’re young and healthy. If you can’t find coverage now, guaranteed issue life insurance improves your odds. Issuers won’t ask questions about your health or require a medical exam. You’ll likely be accepted with a smaller death benefit but it may be just enough to avoid saddling your loved ones with death-related expenses.