Guaranteed Issue Life insurance
By James Tobin, CFP®
LIHD Difficulty Rating
Jim Tobin, CFP®
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Final Expense Life Insurance
Expert Review Of Guaranteed Issue Life Insurance
If you watch television or listen to the radio, it is nearly impossible to avoid the marketing of guaranteed life insurance products. In spite of all the advertising (or because of it), you may have some questions you want answered.
The purpose of this article is to answer these questions and provide the information you need to get the best possible deal on life insurance.
What is Guaranteed Issue Life Insurance?
Guaranteed issue life insurance is a sub segment of the "Final Expense" life insurance market.
Final Expense insurance is primarily just what it sounds like : insurance that covers funeral, burial, and related expenses.
These policies are usually between 5000-50000 dollar benefit amounts.
In addition to covering final expenses, seniors often use them to leave a gift to loved ones.
These policies are generally offered on a "simplified issue" basis. That is, there is no medical exam and very lenient underwriting compared to traditional fully underwritten term insurance.
Unlike simplified issue policies that have some underwriting via medical questions and prescription checks, Guaranteed issue life insurance generally has no medical questions.
If you are a citizen and of a certain minimum age ( company specific), you qualify.
Graded Benefits: How Guaranteed issue Life Insurance Works
Because you can apply for and receive, guaranteed life insurance right up to the end of your life, the carriers protect themselves by making the premium to benefit expensive and paying out the benefit on a graded basis.
A graded benefit meas that you do not get the full benefit if you pass within the graded period. Note, however that in most cases, if your death was caused by an accident, the full benefit would be paid.
for example, if you purchased a policy with a 25/50/100 grading provision and you were to pass in the second year of the policy you would receive 50% of the face amount benefit.
Are Guaranteed issue Life Insurance Policies Worth it?
This is a question that can only be answered in the context of the individual applicants situation.
I generally would advise that the only time a guaranteed life insurance policy makes sense is if all other avenues have been explored and failed to provide coverage.
The premium to benefit ratio and the graded benefit provisions make guaranteed coverage the least consumer friendly.
You may be thinking "if that's the case why is it so popular?"
The answer is that it's profitable to the carriers and they advertise like crazy because of this profitability. AARP, Colonial Penn, AIG, Mutual of Omaha ...the list goes on and on.
Guaranteed Life is the only solution available, what's next?
If you have exhausted all the other possibilities with the help of an independent agent, and you think it is still worth the price to benefit, this is you next step:
Speak with your independent agent and ask him to compare his best offering to the best carrier direct offers.
Some carriers (many) only offer guaranteed issue life insurance directly with the carrier telephone agent. Traditionally mutual of Omaha is the best priced of these products.
Independent agents don't have the multiple choices they do with fully underwritten policies or even simplified issue but they should be able to compare to a few. Gerber Life tends to be the best priced option to the independent market.
While i am not a big fan of guaranteed policies, I understand they have their place.
However, I would encourage you to use your independent agent to explore other options first. Many, if not most, of the guaranteed issue policies sold could have qualified for immediate full benefit at a better price. Just like the guaranteed policies the rates are fixed for life and no exam is needed.
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