What is guaranteed life insurance?

What is guaranteed life insurance?

Guaranteed life insurance is a form of coverage intended for people who are middle-aged or in their retirement years and those with health or medical issues that may disqualify them from buying a more substantial kind of policy. Applicants do not need to submit to an insurance medical exam or answer questions about their health and wellness, and the approval process takes days or hours, not weeks.

“Guaranteed acceptance life insurance does not have a medical exam, and no health questions are ever asked. Your acceptance is guaranteed regardless of your medical conditions,” explained Randy VanderVaate, a licensed insurance agent in Dallas.

Guaranteed life insurance has relatively low coverage amounts — typically $25,000 or less — coupled with fairly high premiums.

One of the main downsides, said VanderVaate, is that a mandatory waiting period is required “where if you die of a health or medical issue, the insurance company [may not] pay any death benefit.” Guaranteed issue coverage is also graded, meaning the full death benefit won’t be paid out if you die during the grading period, which typically lasts 24 to 36 months. Rather, beneficiaries will receive a sum equal to premiums paid to date plus interest.

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How does guaranteed life insurance work?

A guaranteed life insurance policy works in much the same way as other forms of permanent life insurance. In return for paying your premium on time, the insurance company will pay a tax-free death benefit to your beneficiaries when you die.

However, a guaranteed life insurance policy is graded, meaning that if you die before a certain amount of time has elapsed — typically two or three years  the full death benefit will not be paid. Instead, your beneficiaries will receive a refund of your premium payments to date, plus interest.

Unlike a traditional term or whole life insurance policy, which can be purchased by people young and old alike, guaranteed life insurance is limited to persons aged 50 to 80. There’s no medical exam or health questionnaire required, meaning acceptance is guaranteed for qualified applicants.

Who should get guaranteed life insurance?

If you are in poor health, are middle-aged or older, or have been turned down for other kinds of life insurance, you may want to consider a guaranteed issue policy. This kind of coverage can benefit many people, including those who:

• Had a term life policy expire and are too old to buy additional term coverage
• Have been recently diagnosed with a chronic or terminal illness such as cancer, COPD or dementia
• Live with a chronic health condition such as Type 2 diabetes or AIDS
• Are awaiting an organ transplant or are on dialysis

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Pros and cons of a graduated life insurance

Guaranteed life insurance is an easy way for persons who are older or have a serious health condition to buy coverage because any qualified applicant will be accepted. But there are some drawbacks as well to this kind of life insurance.

Alternatives to guaranteed life insurance

Guaranteed life insurance may not be the best choice for every consumer, even those who may be older or in less-than-prime health. But there are other options available.

Simplified issue life insurance

One alternative to guaranteed life insurance is simplified issue life insurance. “It offers a chance of approval without a medical exam and much lower premiums than a guaranteed acceptance policy,” VanderVaate said.

You can also get more coverage with a simplified issue life policy than with guaranteed life — up to $100,000 in some cases. Simplified life insurance also typically costs less than guaranteed life coverage for comparable policies.

It’s worth noting that while you won’t be required to undergo a medical exam when applying for a simplified life insurance policy, you will have to answer some questions about your general health. Also, unlike with guaranteed life insurance, you can be turned down for a simplified life policy even if you meet the age requirement.

Whole life insurance

Another form of permanent life insurance, whole life coverage, comes with level premiums and a death benefit that is guaranteed. It also contains a savings component that grows on a tax-deferred basis at a fixed rate of return and can be withdrawn or borrowed against by the policyholder.

You’ll find much higher coverage limits with whole life insurance than you will with guaranteed life insurance — as much as $1 million or more, depending on the insurer and policy type. But the underwriting process for a whole life policy is also more rigorous; you’ll need to undergo a medical exam as part of the application process, and you may be turned down.

Term life insurance

Term life insurance is not permanent — it lasts for a set amount of time called a term. Like whole life insurance, the typical term policy has fixed premiums and a guaranteed death benefit. Unlike whole life, term life insurance has no cash value. And when the term has expired, your coverage ends. Coverage of $500,000 to $1 million or more is available, depending on the company and policy, and premiums are lower than for a comparable whole life policy because there is no savings component.

Bottom line

If you’re in poor health, have been turned down for other types of life insurance, don’t want to take a medical exam or simply want coverage quickly, a guaranteed life insurance policy may be a good option. Limited to persons aged 50 to 80 — some insurers accept younger or older applicants — acceptance is assured for qualified applicants.

There are drawbacks, however. Death benefits are low: typically $25,000 or less. That may be enough to cover final expenses, but not enough to leave a substantial financial legacy to your loved ones. Premiums tend to be much higher relative to coverage amounts than for other types of insurance. Finally, the death benefit will not be paid if you die during the policy’s graded period, which is usually the first two or three years after purchase.