Is guaranteed life insurance a good choice? You’ve seen it advertised by has-been celebrities. They make it sound “sooo” attractive. No medical exam. You can’t be declined. They don’t even ask you about your medical condition or the medications you take. This pitch might really appeal to you if you think you can’t get coverage elsewhere.
And it does sound pretty good, I’ll have to admit.
But if you look under the hood, you’re going to see some pretty ugly aspects to guaranteed life insurance – more appropriately referred to as guaranteed issue life. Here are two limitations you should know about:
- – The death benefit is small – usually less than $25,000.
- – Usually, you can only buy the policy if you are between the ages of 50 and 85.
And besides these limitations, there are two huge problems with this insurance:
1. Sky-High Premiums
Because the company doesn’t get any information on the applicants, they tend to get people who are otherwise uninsurable. (Seniors looking for cheap life insurance are drawn to this sales pitch but are usually disappointed.)
As a result of covering sick people, the company has to cover their risks by charging enormous premiums. The premiums are so high that if you live for 10 or 15 years, your beneficiaries may not even get back what you paid in. That’s outrageous.
2. Graded Benefits
Most insurance policies cover you the minute you sign the application. That’s not always the case with guaranteed issue life insurance. Many of these policies won’t pay out the death benefits if you die within the first few years. If you do pass away during that time, your family will probably get back the premiums you paid in, but not more.
A better approach is to get quotes from lots of different insurance companies for life insurance. Even if you’ve been turned down by other carriers, you should talk to other companies. It doesn’t cost you anything but some time. And over time, your health may have improved or some companies may change the way they underwrite. You don’t lose anything by trying.
In a very worst-case scenario, I suppose that guaranteed life insurance is better than nothing – but I’m not even sure about that. Even if you do use this fallback position, you should continue to look into getting a more mainstream life insurance policy. Understand what term life insurance really is, and then you’ll be better equipped to get the right policy at the right price. I think life insurance companies serve a purpose, but you have to remain vigilant.
If you liked this post, you might also want to read “Cheap Term Life Insurance – What to Watch Out For.”