A brief guide to guaranteed issue life insurance
You've probably seen the late-night life insurance commercials that claim "you can't be turned down" or that "acceptance is guaranteed." Those ads are for guaranteed issue life insurance, which is sold without a medical exam or detailed health questionnaire.
Who is a good fit for guaranteed issue life insurance?
Guaranteed issue life insurance is often the last resort for people unable to acquire life insurance through a traditional underwriting process, which requires a medical exam.
Contrary to its name, not everyone qualifies for guaranteed issue life insurance. For example, people who live in nursing homes, long-term care facilities or hospitals might not be able to get this type of life insurance. Furthermore, these policies are not generally sold to people older than 70 years of age.
The guaranteed issue life insurance application
When applying for guaranteed issue life insurance, you can expect to answer basic health questions, as well as questions about existing medical conditions or diseases, including:
- Kidney dialysis
- Use of oxygen
- Organ transplants
- Terminal illness
- AIDS and HIV
Applications often ask for detailed explanations of medical conditions. You'll have to provide information about your health history from the last 12 months. You are also likely to encounter questions about multiple hospitalizations, cancer treatment and drug abuse.
What else you should know about guaranteed issue policies
Guaranteed issue life insurance policy premiums are usually fairly high. In fact, the rates can be four to five times greater than traditional term life insurance with a comparable amount of coverage. The face value of guaranteed issue life insurance is fairly small--it's not unusual to encounter a cap of $20,000 and policies for amounts greater than $50,000 are difficult to find.
Graded benefits is another feature to watch out for. If you die soon after buying coverage, generally within two years, beneficiaries may only receive a refund of your premiums rather than the entire death benefit. For example, the AARP guaranteed life policy pays 125 percent of your premiums if you die in the first two years. Deaths resulting from suicide don't receive any payout in the first year or two, depending on the laws of the state in which the policy is written.
Despite these drawbacks, many people purchase guaranteed issue life insurance because they want to provide survivors with a death benefit that will cover their funeral expenses, debts left in the estate or small medical bills.
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