What Is Guaranteed Issue Life Insurance?

Guaranteed issue life insurance, or guaranteed acceptance life insurance, is a life-insurance policy with no health qualifications. Policies are often geared toward the elderly, since most conventional policies require higher premiums and come with medical conditions. Most people who apply for guaranteed issue life insurance cannot be turned down. The only reason someone may be turned down is if they are under or over the age requirement.

Guaranteed issue life insurance policies generally come with higher premiums because the insured is older. This means payouts and death benefits end up being lower. Despite these factors, it is still a valuable financial asset to have for those who can't otherwise get insurance, ensuring they are able to leave something behind to their dependents.

How Guaranteed Issue Life Insurance Works

You've probably heard about guaranteed issue life insurance from television commercials endorsed by celebrities like Fred Thompson and Alex Trebek. Interested parties choose the level of coverage, and answer a few general questions about themselves. Coverage is normally issued regardless of the insured's medical condition. There is usually an age range to qualify, usually up to 75. These insurance policies pay cash to the named beneficiary upon the death of the insured.

Guaranteed issue life insurance policies are available to people with no medical underwriting, and charge higher premiums for lower payouts than conventional policies. Therefore, companies cannot deny coverage as long as applicants can afford the premiums. For this reason, guaranteed issue life insurance tends to attract applicants with health histories that preclude their enrolling in better policies, and who can’t purchase life insurance through their employers.

Besides charging more for less, insurance companies usually make up for the increased risk of insuring applicants who wouldn’t qualify for better plans by offering graded benefits. Graded benefits do not pay out if the insured dies within the first one or two years of the policy. The insurance company typically just refunds the premiums instead.

Graded benefits do not pay out if the insured dies within the first few years of the policy.

Though guaranteed issue life insurance applicants don’t have to answer health questions, their age, gender, and state of residence may factor into the terms of their coverage. And many guaranteed issue policies don’t cover people over the age of 100.

Key Takeaways

  • Guaranteed issue life insurance is a life-insurance policy with no health qualifications.
  • These insurance policies generally come with higher premiums, as well as lower payouts and death benefits.
  • They are available to people with no medical underwriting, which is why they attract applicants with health histories that preclude their enrolling in better policies.

What to Look for in a Policy

No two guaranteed issue life insurance policies are the same. So, like other insurance policies, you should shop around for the one that best fits your needs. Look around for the most affordable rates possible—something you know you'll be able to keep up with even if your financial situation changes. Some basic things you should look out for, though, include:

  • Policies that increase the death benefit if you die in an accident.
  • Guaranteed premiums that are locked in at the time your coverage begins.
  • Earlier payouts if you are diagnosed with a terminal illness.
  • Companies that offer lifetime coverage, with premiums that are required only up to a certain age.

Ask the insurance company about its rules surrounding graded benefits. This means the insurance company doesn't pay out or pays out a lower benefit if you die within the first several years of coverage. You should find out how much they pay out, and how long you have to wait until you get the full benefit of the policy.

Read the fine print and make sure the policy is on the up-and-up. As soon as you find a policy you like, make sure you sign it to ensure your benefits are locked in.

Guaranteed vs. Conventional Policies

There are some key differences between guaranteed issue life insurance and conventional life insurance policies. Guaranteed issue life insurance pays much less than conventional life insurance policies. The former may range anywhere from $5,000 to $25,000—or a little higher—while the latter commonly pays out as much as $1 million or more.

This difference in scale between the two types of life insurance affects how they function. A conventional policy is more likely to keep beneficiaries solvent long enough to reorganize their finances after the loss of a breadwinner. Most guaranteed issue policies, on the other hand, pay little more than funeral and burial expenses.

Guaranteed issue policies are useful, but only to applicants who don’t qualify for conventional policies and who have a chance to live past the graded benefits period of one or two years. Many elderly applicants and applicants with health issues believe they could never qualify for a term life policy that requires medical underwriting. But that often isn’t the case. Even applicants who are pessimistic about their chances ought to consider applying for conventional term life insurance through several different companies. The terms they offer, if the applicant qualifies, may not be ideal, but they may still beat the high premiums and low payouts of guaranteed life insurance policies.

Are There Alternatives?

Many people who qualify for guaranteed issue life insurance policies may have limited income, so they may want to consider alternative options. Here are a few:

Group life: This kind of insurance is usually available from your employer or other large entity such as a union. Group life is a benefit offered by most employers to their staff, and comes with basic life insurance coverage and no or low premiums. The death benefit may be low, but insured parties can purchase advanced coverage with a higher payout for a little extra. Some basic personal questions may be asked, but there is rarely ever a medical exam required. Coverage goes as long as the member is part of the group, after which, the policy can be converted to an individual policy.

Final expense: Also called burial insurance, this kind of policy is designed to cover all the expenses your family will need to cover after your death. These costs may include medical bills and/or funeral expenses. Final expense insurance doesn't necessarily insure your life, but it does cover the value of your funeral. Because of this, these policies payout smaller amounts, up to about $25,000. If you have whole or term life insurance, you may not require this kind of insurance.