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Guaranteed Issue Life Insurance: Good or Bad Deal?

Written By Doug Mitchell

Doug Mitchell, CLU holds a BA degree in Finance from Auburn University as well as having obtained a Chartered Life Underwriter (CLU) designation from The American College in Bryn Mahr, PA.  Doug has spent close to 30 years in the insurance and financial planning industry and has held licenses to sell securities, long-term care insurance, health.  Doug is also a financial blogger addressing the topics of life insurance, annuities and retirement income planning.

Holly Mitchell  &

Holly Mitchell’s background in life insurance insurance goes back to 1985 when she worked for her father who was a New York Life agent. Holly has a marketing degree from Auburn University and has had a life insurance license since 2008. In addition to advising life insurance for customers all around the country, Holly is our website fact checker.

Rob Pinner   &

Rob Pinner is the founder and CEO of Pinner Financial Services servicing all 50 states. Rob started his insurance career in 2002.

Louis LaBash

Results-driven and innovative life insurance professional with 30 plus years of life insurance industry sales and marketing experience. Recognized as a pioneer in the field, leveraging phone and internet channels to exceed personal sales of over $100 million during the first decade of the 21st century. Creator of a highly effective intuitive IUL life insurance sales software that facilitated the sale of millions of dollars of indexed universal policies by numerous life insurance agents. Proven track record as a Managing General Agent (MGA), Life Agent, IUL Life Insurance Sales Software developer, and leading-edge creator of insurance marketing tools, educational content, and delivery systems.

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If you’ve never shopped for life insurance before, you may not know how many kinds of plans there are. You may assume they are all the same.

If you were buying a security system for your home, you would compare several different systems to make sure your family is safe. Life insurance works the same way.

Have you ever seen advertisements on TV for life insurance that accepts everybody? Some companies advertise that they offer coverage for anybody who applies without asking a single health question.

If you are a naturally skeptical person, you might wonder how an insurer can stay in business when they offer to cover every single applicant. After all, aren’t some people just too risky to cover?

What Is Different About Guaranteed Issue Life Insurance?

You are prudent to suspect that there is something different about guaranteed-issue life insurance than typical policies that require the answers to a lot of health questions.

Companies that offer these policies know what they are doing, and they are not in the business of losing money by offering large death benefits to every applicant without doing any underwriting.

This article is going to explore the different components of a guaranteed issue plan and the advantages to help you decide if one of these plans will work well for you. If you have any additional questions about life insurance, don’t hesitate to ask.

Waiting Periods vs. Health Underwriting

Typical life insurance applications involve answering several questions about your health, personal habits, and even your employment. This is how companies figure out how risky you are to cover. They use your answers and other information to assign you a risk class.

Some other information may include medical reports or even requested physicals. They base your rates upon your application answers and other information they request.  They may even decline your application if they consider you too risky to cover.

How can companies that offer to accept every applicant still make any money? It might seem logical to assume that a lot of sick people would rush out and take advantage of these offers if they lack any coverage.

Guaranteed-Issue policies use a waiting period instead of health underwriting. In other words, the fine print of these policies is likely to say that your beneficiaries do not qualify for the full death benefit until two or three years have passed.

In some cases, the policies may pay out a portion of the death benefit in graduated steps. For example, a policy may pay out the full death benefit after three years of owning a policy. If the insured person passes away after 12 months, the policy might pay out 25 percent of the benefit, and it might pay out half the death benefit after two years.

If the insured person passes away before 12 months have passed, it could offer to refund premiums. Note that these are just examples, and you have to look at any particular policy you plan to buy to find the exact details.

What Else Is Different About Guaranteed Acceptance?

Typically, guaranteed-issue policies will have relatively small maximum face values too. They may be limited to several thousand dollars. This is no way to buy a million dollar life insurance policy.

These policies are usually intended for older people who just want to purchase a small amount of coverage to pay for a funeral or settle debts after they pass away.

You should also be aware that the price you pay for each dollar of coverage will be higher than it is for typical fully-underwritten policies. Since the policies are usually fairly modest in size, the price might seem affordable. Even if you could buy a large policy this way, it would be a very expensive way to do it.

Life Insurance Math?

Not having enough life insurance coverage could leave your family with additional expenses and bills that they don’t have to money to pay for. To make sure you have enough life insurance, let’s add up some numbers.

Add up your debts. You should include everything from student loans to mortgages. Your debts could easily equal hundreds of thousands of dollars, which could leave your family with a mountain of debt.

Next is your final expenses, like your burial fees. While most applicants don’t realize it, a funeral can be an expensive affair. The average funeral costs around $10,000, which is an expensive bill for a family that’s going through a difficult time. Make sure that you add in all of the funeral-related costs when calculating your family’s life insurance needs.

The next number to add in the equation is your annual income. You want to give them enough money to replace your income. Make sure the plan is big enough to replace your paycheck for at least five years.

The last number that should be added up is any future expenses that you can plan for. You can’t predict the future, but you do know some bills that they are likely to encounter. For example, if your children plan to go to college, you can add tuition to your life insurance needs.

Is Guaranteed-Issue Life Insurance A Good Deal?

If you can qualify for fully-underwritten life insurance, it will almost certainly be cheaper per dollar of coverage. There are also simplified issue policies that only ask a few health questions, and many reasonably healthy people can qualify for these.

Typically, both fully-underwritten and simplified issue policies will also provide an immediate death benefit. This means that the insured person will be covered by the full death benefit the moment the policy gets approved. If you want the cheapest life insurance you should look elsewhere. Guaranteed life insurance isn’t the cheapest.

Even if you’ve been declined in the past, it’s possible to find a company that will approve you for a traditional plan, which could save you hundreds, or even thousands of dollars on your policy.

The key point to remember is that it is probably never wise to purchase the first life insurance policy that you see advertised on TV, like Colonial Penn or AARP. These companies spend a lot of money on advertising, and you might find a better deal by speaking with a good life insurance agency (like ours).

What sets us apart from the other agencies? Our agents are tied to any single company. We have built relationships with more than 30 companies across the country.

What does this mean for you? It means you won’t have to call all 30 companies yourself. Give us a call, answer a couple of questions, get a ton of quotes. It’s as easy as that.

Guaranteed-issue policies can provide a good choice for people who might not qualify for other types of policies, but they might not be your first choice if you are reasonably healthy. We almost never recommend one of our clients purchase one of these plans, unless we’ve already tried everything else.

Compare quotes for life insurance using our quote tool on this page, or call us at 1-800-712-8519 to discuss your life insurance needs and apply for life insurance coverage.

Picture of Doug Mitchell, CLU

Doug Mitchell, CLU

Doug Mitchell, CLU holds a BA degree in Finance from Auburn University as well as having obtained a Chartered Life Underwriter (CLU) designation from The American College in Bryn Mahr, PA. Doug has spent close to 30 years in the life insurance and financial planning industry and has held licenses to sell securities, long-term care insurance, health. Some other notable items about Doug: Top of the Table Million Dollar Round Table member (MDRT). (MDRT is a global, independent association of the world’s leading life insurance advisors) | Premier Partner with Lincoln Financial and Cabinet Member | Served two years as President of the Auburn/Opelika Association of Financial Advisors | Life Millionaire status at Horace Mann Insurance Company and was awarded the Life Agent of the Year Award | New York Life, Executive Council Member | Currently serves as President of Ogletree Financial, a life insurance General Agency. | Doug is also a financial blogger addressing the topics of life insurance, annuities and retirement income planning.

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