Pros And Cons Of Guaranteed Issue Life Insurance

Updated: Jul 14, 2020, 9:43am Amy DaniseEditor

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Guaranteed issue life insurance solves specific problems for certain people. If you’re not one of those people, it’s probably a bad purchase.

You may also see it called guaranteed acceptance life insurance.

The main selling point of guaranteed issue life insurance is that you can’t be turned down for it. It’s also amazingly convenient compared to most other types of life insurance: There’s a simple application that doesn’t ask any medical questions.

So what’s not to like? High costs, low coverage amounts and what are called “graded death benefits.”

Who is Guaranteed Issue Life Good For?

Guaranteed issue life insurance can provide life insurance to certain people who need life insurance but don’t have any other options. Perhaps they want to provide money for heirs to pay for a funeral or final expenses. Or perhaps they want to provide a small legacy for children or grandchildren. This type of life insurance can help people who:

·        Have medical conditions that would make it impossible or unaffordable to buy other types of life insurance such as whole life insurance

·        Have limited budgets for life insurance

·        Are OK with having only a small amount of life insurance coverage, such as $25,000

If that’s not you, there are better options. Policies such as universal life insurance can provide higher coverage amounts  (much higher, into the millions). These other options may require a life insurance medical exam, but can ultimately provide the best pricing. And there are ever-expanding options for no-exam life insurance, especially for term life insurance buyers.

What to Know About Guaranteed Issue Life Insurance

If you’ve decided guaranteed issue life insurance is for you—after ruling out other options—here’s what to know.

Best Age for Buying Guaranteed Issue Insurance 

Many guaranteed issue insurance companies have a minimum age between 40 and 50 to apply, and won’t sell new coverage to people after age 80. 

Coverage Caps

Guaranteed issue life coverage amounts available are usually very low, often between $10,000 and $25,000. Because of the low amounts of coverage, guaranteed issue life insurance is often purchased to cover only final expenses, such as a funeral, medical bills and small debts.

High Rates

Guaranteed acceptance life insurance is one of the most expensive ways to buy life insurance. Unless you have serious health conditions that would get you declined for other policies, look into other policy types first. An independent insurance agent or advisor can help you shop among multiple companies. Also, an experienced advisor will know which insurers are most likely to give you the best pricing based on your medical conditions. 

Rates are based on the age at which you bought the policy and your gender. 

Graded Death Benefits

Guaranteed life insurance companies commonly use graded death benefits to protect themselves from purchases by severely ill people. 

If you pass away within the first two or three years of the policy for any reason other than an accident, your beneficiary could receive only a refund of the premiums you paid, plus interest. Interest amounts paid vary by company but can be in the range of 10% to 30%. If the death is from an accident, such as a car crash, the policy will pay the full coverage amount to your beneficiaries, even if you bought it recently. 

Cash Value 

Some guaranteed issue policies build cash value, which you can access through a policy loan. If you don’t pay the loan back before you pass away, the payout to your beneficiaries will be reduced by what you owe. In addition, the payout to your beneficiaries is the coverage amount of the policy, not the coverage amount plus cash value.

Guaranteed Issue Life Insurance Pros and Cons

Pros	Cons
Easy to apply	Low coverage amounts only
No medical exam required	Beneficiaries won’t receive the full payout if you pass away within two or three years after buying the policy (except for accidental death)
No health questions to answer	The price is high for the amount of coverage you get

Cost of Guaranteed Issue Life Insurance vs. Whole Life Insurance

Unless severe health conditions make buying other types of policies impossible, you can likely save significant money by buying a more traditional policy. For example, if a 70-year-old female buys a guaranteed issue life insurance policy with $20,000 in coverage, she could pay about $18,700 over 10 years. A $20,000 whole life insurance policy could cost her about $12,400 over 10 years.

Applicant for $20,000 in coverage	Guaranteed issue life insurance	Whole life insurance
Female, age 70	$156/month	$103/month
Female, age 80	$349/month	$194/month
Source: Rates are based on the lowest quotes we found online.

Who sells it?

Here’s a sample of sellers of guaranteed issue life insurance. Note that products might not be available in all states. Make sure you look at a policy’s rules on graded death benefits before buying. 

AAA Life Insurance sells guaranteed issue life insurance to folks ages 45 to 85 for coverage amounts up to $25,000. At age 100 and after there are no further premiums due. 

AARP: The association offers a policy through New York Life for AARP members ages 50 to 80. Coverage amounts go up to $25,000 with one catch: It’s not available to applicants who are currently terminally ill. 

AIG Direct offers policies for $5,000 to $25,000 in insurance for individuals ages 50 to 85.

Alfa Insurance: Alfa’s guaranteed acceptance life insurance is for buyers ages 40 to 80 who are looking for up to $25,000 in coverage. 

Americo offers guaranteed issue life policies with coverage up to $10,000 to those ages 50 to 75. 

 Colonial Penn sells guaranteed issue life policies for up to $50,000 in coverage to those ages 50 to 85 in most states. Colonial Penn uses “unit pricing,” offering units of coverage to everyone that start at $9.95 a month. But the coverage amount within a unit will vary based on your age and gender. 

 Fidelity Life’s RAPIDecision guaranteed Issue policy provides up to $25,000 in coverage for people ages 50 to 85. There’s a graded death benefit for the first three years, and you can build cash value.

Gerber Life Insurance offers guaranteed issue policies to people ages 50 to 80 with coverage of $5,000 to $25,000. The policies can build cash value. 

Mutual of Omaha offers guaranteed whole life insurance with coverage choices up to $25,000 for people ages 45 to 85.

Vantis Life’s Guaranteed Golden Final Expense insurance for folks ages 50 to 80 provides coverage levels from $5,000 to $20,000.

Get Professional Advice

Guaranteed issue life insurance has its pros (convenient, no medical exam) and cons (small benefit amounts, graded death benefits) to appeal to a specific market. For seniors with limited income with serious health conditions and family needs, the thought of paying their funeral costs for about $10 a month can be appealing.

For people with health conditions, it’s especially important to work with a life insurance agent who will shop the market for you. Experienced agents will know which life insurance companies are most likely to accept you, based on your health history. Check out your other options before you plunge into a guaranteed issue policy.

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