Who Should Buy Guaranteed Issue Life Insurance – A Surprising Answer

by Neal Frankle, CFP ®

Guaranteed issue life insurance is a last-ditch option for many people. But is it a good bet? First, let’s understand what guaranteed life insurance is.

This is a life insurance policy that the company “must” issue if you pay your premium. The company usually just asks your age. They don’t ask any medical questions whatsoever.

As you know, most life insurance applications ask you lots of medical questions. And they usually have a nurse come to your house for a medical exam. They really only want to insure you if you are healthy. This way, you’ll pay premiums for a long time and possibly even cancel the policy before you die.

Guaranteed issue insurance caters to people who can’t get term life coverage anywhere else. So if you can’t get life insurance elsewhere, why not get a guarantee issue life insurance policy?

There are plenty of reasons:

First, the premiums for a guaranteed issue life  policy are high. They could even be four or five times as expensive as a comparable life insurance policy.

“Well,” you’re saying to yourself, “if I can’t get coverage elsewhere, I’m willing to pay the higher price.” Don’t be so sure it’s a good option. First, even if you think you aren’t insurable or you’ve been declined by other companies, it never hurts to ask other companies for offers.

Understand that insurance companies are really run by actuaries. (These are just accountants with a tad less personality). They determine what your life expectancy is.

Different actuaries interpret risks differently. One mainstream life insurance carrier might offer you a policy where other companies wouldn’t. It never hurts to ask for a life insurance quote.

There is also one big caveat you have to understand if you are going to buy a guaranteed issue policy. In most cases, if you die (other than as a result of an accident) within two years of buying the policy, you only get your premiums refunded. You won’t get the full death benefit. This is the insurance company’s way of protecting itself from very bad risks.

But people facing huge health risks are the ones most interested in buying this policy. For that reason, if you are facing a major health crisis and are scrambling to buy life insurance, make sure you check this provision out before you sign on the dotted line.

Another consideration is that these guaranteed  policies are usually issued for small amounts. Usually, the policies issued for death benefits are between $5,000 and $50,000.

If you need life insurance, don’t assume a traditional carrier will decline you. Find out. It doesn’t cost anything to get a quote. It could be the best move you could make to protect yourself and your life insurance beneficiary. Of course you should be completely honest when you complete your application. But guaranteed  life  should be your very last option and even then, possibly avoided.

 

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