life insurance

How Much Coverage Does Guaranteed Issue Life Insurance Actually Guarantee You?


You see the fliers. You hear the radio spots. You see the commercials. The message is always the same; "Get approved for guaranteed issue life insurance with NO medical exams and NO medical questions!" But how much coverage does guaranteed issue life insurance actually guarantee you? Insurance.com tries to breakdown the idea of guaranteed issue life insurance, to help give you a better understanding of what it is, and what other alternative options are available.
Guaranteed issue life insurance is an insurance policy that will insure whoever applies for it, no questions asked. Sounds too good to be true, right? Well, it kind of is.
Typically, guaranteed issue life insurance is marketed towards senior citizens or those with medical problems. The catch for these kinds of policies is that you generally can't find coverage for over $20,000. Also, the cost of the premium tends to be higher because no medical exam or medical information is required.
When it's all said and done, it's possible that you will wind up paying more in premiums than your beneficiaries will see in death benefits. Definitely not a plus for those paying into the policy! And that is why this issue has drawn attention from State Insurance Regulators and the National Association of Insurance Commissioners (NAIC). To help fight this scam life insurance policy, a working group has been established to see what kinds of action should be taken against the companies selling these policies and what can be done to protect others from getting taken advantage of.
A disclosure is in the works, warning consumers of the possibility of paying more in premiums than the actual face value of the policy is worth. However, the NAIC needs to be cautious of how they step in, because saying too much could be a form of rate regulation, which is something that they are not prepared to do.
How the insurance company protects themselvesA graded benefits clause has been added to guaranteed issue life insurance policies to protect the insurance company from fraud. Graded benefits states that if the policyholder dies within two to three years of buying a guaranteed issue life insurance policy, a refund of the policy's premiums, plus interest, will be paid instead of paying out death benefits. This in effect prevents people on their deathbeds from signing up for a policy, just to gain some extra funds. A company may pay out full death benefits in the event of an accidental death - but remember, the definition of what is accidental is very limited, and this feature is only offered through certain companies.
Insurance companies base your rates on your age and medical information, so if you can buy life insurance after going through a medical exam and answering medical questions, it would be more cost effective to purchase through those means, rather than with guaranteed issue. Not to mention that you will probably pay less and have better coverage.