Guaranteed issue life Insurance, also known as guaranteed acceptance life insurance, is a whole life insurance policy where the applicant’s health status is not taken into consideration.
Breaking down Guaranteed Issue Life Insurance
Guaranteed issue life insurance (advertised as Guaranteed Acceptance by Colonial Penn) is a whole life insurance policy primarily used as funeral and burial insurance. The insurance companies that offer this type of policy generally target seniors who have preexisting medical conditions that prevent them from medically qualifying for less expense traditional whole life insurance.
There are, however, a number of insurance companies who market guaranteed issue life insurance directly to seniors through television advertising that is based on emotion. We certainly don’t consider this a bad thing but in many cases guaranteed issue life insurance is sold to seniors who may have qualified for a much cheaper level Benefit policy.
Guaranteed issue life insurance should be purchased as life insurance of last resort because it is typically more expensive and includes a waiting period during which the insurer will not pay the full death benefit if the policyholder dies from natural causes.
Here’s How it Works:
Most life insurance companies that offer life insurance for seniors will have two or three types of policies available:
- Level Benefit Life Insurance – A level benefit policy pays the full death benefit from the first day of coverage whether the insured dies from natural causes or accidental causes. The applicant must medically qualify for coverage by answering “yes” or “no” to a comprehensive list of medical questions on the application. The level benefit policy is always priced the lowest.
- Graded Benefit Life Insurance – A graded benefit policy was designed to accommodate applicants who cannot medically qualify for a level benefit policy. With this policy, the death benefit will be paid out on a reduced basis for the first two or three years. A typical graded benefit policy will pay out 25% of the death benefit the first year, 50% the second year, 75% the third year, and then 100% thereafter. Ordinarily, death resulting from an accident pays 100% from the first day. Different insurance companies have different payouts so be sure you understand the payout before agreeing to purchase a graded benefit insurance policy.
- Guaranteed Issue Life Insurance (also known as guaranteed acceptance or modified benefit) – Guaranteed issue life insurance was designed for applicants with serious or multiple health issues that prevent them from getting covered under a level benefit or graded benefit final expense policy. Since the insurance company does not consider the applicant’s health status (no medical exam and no health questions) in the underwriting, it is accepting an unknown health risk and will charge much more and apply a waiting period. Typically, insurance companies who offer guaranteed issue life insurance will pay modified death benefit for the first two years that is equal to the sum of the premium payments plus 10% if death is the result of natural causes. Once again, since companies use different modified death benefits, always make certain that you understand how the death benefit is affected before you purchase your policy.
You mentioned Final Expense Insurance – what does that Mean?
Final expense insurance is actually a catch-all marketing term that is used to market whole life insurance policies that are designated to pay for the policyholder’s final expenses like funeral and burial costs, unpaid medical bills, and possible nursing home expenses that were not covered by health insurance.
Insurance companies that offer final expense insurance (and there are many of them), almost always use whole life insurance since the coverage will last for a lifetime, the payments remain level, and the policy will build cash value over time. Final expense is generally available for applicants between the ages of 50 and 85 and provides a death benefit between $5,000 and $35,000. Once again, different companies have different products so be sure and check with your independent agent who will generally represent most of the companies that offer guaranteed issue life insurance.
How does Level Benefit, Graded Benefit, and Guaranteed Issue differ in Price?
With most insurance companies that offer final expense whole life insurance, Level Benefit will be the cheapest, then Graded Benefit will cost a little more, and then Guaranteed issue will be the most expensive.
Here is an example of insurance quotes for a $10,000 policy for a male non-smoker for each type of policy:| Age of Applicant | Level Benefit | Company | Graded Benefit | Company | Guaranteed Issue | Company |
|---|---|---|---|---|---|---|
| 50 | $27.92 | Security National | $38.04 | Security National | $44.09 | Gerber |
| 55 | $35.70 | Americo | $43.21 | Security National | $56.90 | AIG |
| 60 | $43.68 | Americo | $55.23 | Security National | $63.17 | AIG |
| 65 | $55.20 | Americo | $72.83 | Security National | $84.15 | AIG |
| 70 | $72.93 | Americo | $101.52 | Security National | $98.15 | AIG |
| 75 | $94.87 | Security National | $151.50 | Security National | $138.55 | AIG |
| 80 | $130.78 | Security National | $216.09 | Foresters | $246.44 | AIG |
As you can see from this rate chart, each plan becomes more expensive because with each plan the applicant’s risk to the carrier is increased.
What other Options are there Besides Guaranteed Issue Life Insurance?
Your life insurance rates will always be based on three criteria: your age, your health, and the amount of insurance you want to purchase. If you are looking for more coverage at the lowest possible rate, it’s typically never too late to consider term life insurance. We mention this because of the years we have found seniors who think they must automatically purchase whole life insurance when in fact they might qualify for term life insurance.
Although term life insurance is typically for seniors who are in good health, there are many out there who are and as such, should see if they qualify for more life insurance for less money. Yes, term insurance is temporary but most policies provide a conversion privilege that will allow the policyholder to convert the policy to permanent insurance before the policy expires.
Always Speak with an Experienced and Reputable Agent
If like most people, your intention is to purchase life insurance at the lowest possible rate from a highly-rated carrier who will be there when you need them, always speak with an independent life insurance agent like the pros at LifeInsure.com to find a solution that will meet your needs and your budget.
When you purchase your life insurance coverage directly from an insurance company or from a company agent (captured agent) you are severely limiting your choice of insurance companies and your choice of insurance products.
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