Benefits of Simplified, Guaranteed Issue Insurance

If you’ve been denied life insurance due to a serious medical condition, you have several “alternative” options to consider.

Individual life insurance with guaranteed issue or “guarantee acceptance” requires little to no information from the policyholder to be insured.

“They are sold without medical underwriting and they pay out a minimal amount of death benefit. In other words, if you have a preexisting medical condition such as hepatitis or HIV and are considered to be ‘high-risk,’ a guaranteed issue policy may be your only option for coverage,” said MetLife financial planner Tony Franks.

Guaranteed issue policies charge a high premium for a low face value. The term is typically five, ten, or fifteen years, and they are frequently used as a last resort for people who are unable to obtain insurance elsewhere. The face value of the majority of policies is less than $20,000.

“Guaranteed issue life insurance is designed to pay for funeral expenses only,” said Franks. “This is not a policy that would provide a very large death benefit to your family, if you were interested in protecting them financially after your death. Some policies also have age restrictions.”

Guaranteed issue policies are governed by laws enacted by the National Association of Insurance Commissioners. Insurers must disclose how long it will take before premiums paid exceed the face amount.

Furthermore, policyholders have the option to cancel a policy within 10 days and receive a full refund. Guaranteed issue policies also include “graded benefits.” That is, if a policyholder dies within the first two years of coverage, their family will only receive a portion of the death benefit.

However, the guaranteed problem should not be confused with the simplified problem. The Society of Actuaries defines simplified, or “quick” issue individual life insurance as a policy with a quick turnaround due to its no-hassle nature.

This type of policy is available in term and whole life insurance, and while a traditional policy may take 30 days to issue, a simplified policy can be issued in as little as five days.

“These policies require the potential policyholder to answer only a few health-related questions and do not require taking a medical examination,” said Franks.

Those who are interested in purchasing a simplified issue policy frequently do so for the sake of convenience. The insurance application process is much shorter than with a traditional policy, and qualified applicants can receive approval almost immediately.

However, while these policies are marketed as “no-hassle,” they are more expensive than policies with a lengthy underwriting process. Although there is no medical examination and the application process is shorter, underwriters will still look at medical records, employment history, and other personal information before approving an application.

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