If you’ve been turned down for life insurance because of a serious medical condition, there are several “alternative” options you can consider.
Guaranteed issue or “guarantee acceptance” individual life insurance 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 have a very high premium with a low face value. The term is generally five, 10 or 15 years and they are often a last resort for people who cannot get insurance elsewhere. Most policies have a face value of 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.”
The National Association of Insurance Commissioners has laws regarding guaranteed issue policies. Insurers must disclose the length of time it takes until the premiums paid will exceed the face amount.
In addition, policyholders have the option to cancel a policy within 10 days, in which they are eligible for a full refund. Guaranteed issue policies also have what’s called “graded benefits.” Meaning that if policyholders die within the first two years of the policy, their family would only be offered a portion of the death benefit.
However, guaranteed issue should not be confused with simplified issue. According to the Society of Actuaries, simplified, or “quick” issue individual life insurance, is a policy with a fast turnaround because of its no hassle nature.
This type of policy comes in term and whole life insurance, and while a traditional policy may take 30 days to issue, simplified issue can take less than 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 interested in purchasing a simplified issue policy often do so because of the convenience. The insurance application is much shorter than with a traditional policy and qualified applicants can receive almost instant approval.
But while these policies are considered “no hassle,” they are more expensive than a policy that has a lengthy underwriting process. The face value of policies can be issued up to $150,000, and although there is no medical examination and a shorter application process, underwriters will still look at medical records, employment and other personal information before approving an application.