Guaranteed issue life insurance policies are policies that guarantee coverage to all applicants. Unlike most traditional life insurance policies, which require medical exams and answers to medical questions, guaranteed life insurance policies have few requirements. While such policies may sound appealing, they are not appropriate for all individuals, as they have extra costs and reduced benefits that make them suitable for only a limited pool of buyers.

Pros of Guaranteed Issue Life Insurance

With traditional insurance, applicants provide the results of physicals, blood tests, pharmacy history and other relevant information to an insurance company's medical underwriters, who then evaluate the risk of insuring each individual. The insurance company either accepts or declines applicants based on this information. Insurance companies assign a rating to each application, which determines the premiums that the individual pays.

Guaranteed issue life insurance policies, on the other hand, require no medical exams, so individuals who have poor health histories or have never visited a doctor can receive coverage automatically. Since there is no medical underwriting, applications take days and not weeks for approval. Guaranteed issue life insurance, like traditional term life insurance, pays cash to a beneficiary upon the death of the person who is insured.

Cons of Guaranteed Issue Life Insurance

The advantages of guaranteed issue life insurance are offset with some significant disadvantages. Since an insurance company knows nothing about an applicant's health history, it generally offers less coverage than with a traditional policy. In addition, the cost of the premiums is greater in order to compensate for the risks to the insurer. As a result, policyholders may end up paying more in premiums than their beneficiaries receive in death benefits. In addition, if the insured dies shortly after purchasing the policy, the beneficiaries only receive the premiums paid and, depending on the policy, maybe some interest. Insurance companies include these stipulations to protect themselves from terminally ill people who buy policies.

Who Should Buy Guaranteed Issue Life Insurance?

The high premiums, limited coverage amounts and death benefit stipulations make guaranteed issue life insurance suitable for only certain individuals. First, those who have serious health issues and have been denied coverage in the past may have to purchase guaranteed issue life as an insurance of last resort. Second, those who have a fear of doctor visits may have no choice but to purchase this type of coverage. Third, those who want a quick approval may want to consider these policies. Finally, those who don't require a lot of coverage may find guaranteed issue life insurance to be a suitable option. For example, an elderly person who has no dependents may want a policy to cover funeral costs and may not care about the limited coverage amounts.

Think Before Buying

Individuals should analyze the amount of life insurance that they need before purchasing any type of policy. Many employers provide life insurance coverage to their employees, and they don't require medical exams. Although this coverage is usually limited to a small multiple of the employee's annual salary, it reduces the amount of additional coverage that an employee needs to purchase and may alleviate the need to buy an expensive guaranteed issue life policy.

In addition, individuals should take stock of their real reasons for purchasing this type of policy. If they want quick coverage, they should consider the fact that guaranteed issue life policies don't pay full death benefits for some predetermined amount of time after purchase. If they simply have a fear of medical exams, they may want to consider that a medical exam might be less painful than the high premiums and limited coverage of guaranteed issue life insurance. In any case, before purchasing any kind of insurance policy, consumers should obtain at least three quotes from reputable life insurance providers and make sure that they understand the coverage they are buying.