Life circumstances often dictate what we can or cannot do. Getting approved for life insurance is a good example of this fact. It’s easy to find an affordable whole life insurance policy when you can pass a medical exam. However, that option disappears quickly when you have a serious long-term illness or depend on certain prescription medications. Thankfully, there are other options for life insurance.
One such option might be term life insurance. Most insurance companies set term life premiums based on age and smoking/non-smoking status. Since term life is temporary insurance, a medical condition might not disqualify you from being approved. Unfortunately, you need to renew a term life policy each time it expires, which means your premiums go up as you age and future health conditions would disqualify your eligibility.
A more permanent life insurance option is “guaranteed issue whole life insurance.” It’s a whole life insurance policy that doesn’t require a medical exam. There’s no healthcare questionnaire or authorization for the insurance company to review your medical and prescription records. Approval is guaranteed, regardless of health. So, is it the right choice for you? Let’s find out.
How Guaranteed Issue Life Insurance Works
Being sick isn’t the only reason that Americans want to avoid a medical exam. In 2021, a National Health Interview Study conducted by the Centers for Disease Control and Prevention (CDC) revealed that 31.1 million Americans did not have health care. That’s an estimated 9.6% of United States residents. No health care means no medical history. As a result, the waiting period for a guaranteed issue life insurance policy is affected.
How long is the waiting period for guaranteed issue life insurance?
Insurance companies want to minimize risk as much as possible, even with an insurance plan that guarantees coverage. Since there’s no medical history required, guaranteed issue life insurance policies come with a waiting period – usually two to three years. This is to ensure that terminally ill individuals don’t sign up for a policy days before their death. With guaranteed issue life insurance, death benefits will only be paid out to the beneficiary after the waiting period expires.
Building Cash Value
Like all whole life insurance policies, guaranteed issue life will build cash value over time as you make your premium payments. That cash value can be tapped into via loans during the life of the policy, but your beneficiaries will be liable for repayment of those loans if you pass away before they’re paid off. Any outstanding balance on such a loan will be deducted from the death benefit.
Guaranteed Life Insurance Death Benefits
As for the death benefits themselves, they’re typically much lower than you’d see with a more traditional whole life insurance policy. Most guaranteed issue life insurance policies pay out between $10,000 and $25,000, enough to hopefully cover end-of-life expenses like funeral costs, cremation, burial, etc. Accidental death benefits may be larger.
Pros and Cons of Guaranteed Issue Life Insurance
Guaranteed issue whole life insurance can be good for people who don’t qualify for other whole life insurance policies due to health issues. On the downside, guaranteed issue life insurance is expensive and the death benefits aren’t that high. Here are the pros and cons, as we see them.
Guaranteed Issue Pros
- Guaranteed approval
- Builds cash value
- Easy application process
Guaranteed Life Cons
- Low benefits payout
- 2 – 3 year waiting period
- High premiums
Guaranteed approval with no medical exam is the reason why this type of life insurance is so popular. People often forget that it’s whole life insurance, meaning each premium payment goes towards building the cash value of the policy, which makes it an asset, not an expense. The application process is easy and having life insurance provides peace of mind.
The drawbacks, as we mentioned above, are high premiums and low death benefits. The two to three-year waiting period could also be an obstacle for some; however, the insurance company will refund your premium payments, plus interest, to the beneficiary if you die before the waiting period is over. That alone eliminates most of the risk of purchasing this type of policy.
Why not just buy term life insurance?
Permanent whole life insurance of any kind is an asset. Comparatively, term life is more of an expense. Though there exist simplified issue term life policies, there’s still no guarantee that you can qualify for a term life policy without proof that you’re moderately healthy. Additionally, if you are able to get by with a term policy and no medical exam, insurance companies still hold the right to deny death benefits based on pre-existing conditions that you may have had. Though the premiums are lower, you risk throwing the money away.
Meanwhile, guaranteed issue life insurance doesn’t have those issues. Your premiums contribute to the cash value of the policy from day one. While your premiums won’t vet until the waiting period has expired, your family won’t be left in the lurch if you pass on before that happens. Beneficiaries will always receive something, even if it’s just a refund of your premium payments plus interest.
The Bottom Line: There Are Always Choices
Don’t despair if you can’t pass a medical exam. There are always options, and at Principled Life, we can insure anyone. If you have questions about guaranteed life insurance or other options, don’t hesitate to give us a call. One of our experienced insurance advisors will be happy to walk you through your options and help you get insured over the phone.
