Guaranteed Issue Life Insurance and Its Alternatives

Guaranteed issue life insurance is a type of coverage that doesn’t require answering health questions or taking a medical examination. It sets limits on who can purchase a policy and the amount of death benefit, and is one of the easiest types of life insurance to buy. But it’s not for everyone. Learn if this type of policy is right for you, and if not, which type might be.

What Is Guaranteed Issue Life Insurance?

Guaranteed issue life insurance is a whole life policy with a modest death benefit designed to cover final expenses, such as funeral and burial costs, medical bills, and credit card debt. As long as you pay sufficient premiums, the policy should last until you die. It has a few key components: 

• Death benefit: Most policies have a fixed death benefit, payable to beneficiaries you choose, which the policyholder can’t change. But some policies may have features that allow you to increase the death benefit in small increments via “paid-up additions.” (Dividend-paying policies are one example.)
• Cash value: Policies feature a savings component, or cash value, that builds over time and earns interest. Once your policy accumulates a cash value, you can borrow against it or withdraw from it on a tax-favored basis. However, withdrawals and/or loans could reduce the death benefit and, in some cases, cause the policy to lapse.
• Cash surrender value: State laws mandate that whole life insurance policies have a nonforfeiture value. If you decide to cancel the policy or the policy lapses, the life insurance company owes you a nonforfeiture benefit, which is typically the cash value of the policy minus any applicable “surrender” charges.
• Premiums: Premiums usually remain level through the life of the policy, so your rates won’t increase. But premiums must be paid to maintain coverage and prevent the policy from lapsing.

Insurers market guaranteed issue life insurance using various names, including: 

• Final expense insurance.
• Burial insurance.
• Guaranteed acceptance life insurance.

How Does Guaranteed Issue Life Insurance Work?

Like other life insurance, guaranteed issue policies pay out a tax-free death benefit that your beneficiaries can use for whatever they want. But since death benefits for these types of policies aren’t usually more than $25,000, using them to pay final or burial expenses makes sense. The median cost of a funeral and burial with a vault is $9,135, according to 2019 data from the National Funeral Directors Association.

Qualifying for Coverage 

Guaranteed issue life insurance doesn’t require a medical examination, and insurers don’t ask health questions. That’s why it’s called “guaranteed issue.” Health issues usually won’t disqualify you.

Carriers can provide guaranteed issue policies without medical underwriting because these policies have a “graded benefit” period, typically during the first two years of policy ownership. During this time, the full benefit is only paid for accidental death, while a much smaller benefit is paid for death due to natural causes. For example, if the insured person dies from heart disease within the graded benefit period, the insurer might return all premium payments to their beneficiaries plus 10% to 30%, instead of paying the full benefit amount.

 Age Restrictions and Coverage Limits 

To be eligible for guaranteed issue life insurance, you typically need to be between 45 and 85 years old, but age ranges vary somewhat among carriers. And don’t expect robust coverage. Typically, providers offer coverage up to $25,000. Because these policies require little in the way of eligibility, their cost tends to be high relative to insurance that requires some medical underwriting (like health questions) and can vary significantly between providers. 

We requested quotes from two providers for a $10,000 policy to cover a 60-year-old woman. One carrier quoted a rate of approximately $66 per month and the other $42 per month. That’s a difference of $288 per year, which illustrates the importance of shopping around before buying a life insurance policy.

Buying Guaranteed Issue Life Insurance

Like all types of insurance, the purchasing process varies by company. With some large life insurance companies, you can get a quote and buy a policy online in a single sitting, or you can choose to buy through an agent. Typically, an application asks for minimal information, like your age and gender, as well as your beneficiaries’ names and relationships to you. The application may also ask if the policy you are applying for will replace existing life insurance coverage.

Guaranteed vs. Simplified Life Insurance

Simplified issue policies are similar to guaranteed issue in a couple of ways. Both are types of permanent insurance (designed to last a lifetime) and both are easier to qualify for than life insurance sold via a traditional underwriting process. But simplified issue tends to be more affordable and has fewer restrictions on age and coverage amounts because it requires that you complete a short health questionnaire. Your answers give the insurer more information about your health, and thereby reduce their risk. 

The questionnaire may ask if you currently have or have had a history of conditions such as cancer, coronary artery disease, kidney failure, mental illness, AIDS, or a disability. Questionnaires are brief, and a history of disease doesn’t necessarily lead to disqualification.

Alternatives to Guaranteed and Simplified Life Insurance

Guaranteed issue life insurance policies are a good choice if you can’t qualify for a simplified issue policy and you meet the age qualifications. But if you’re willing to undergo a more thorough underwriting process (more health-related questions and possibly a medical exam), you may be able to get more coverage at a much better price.

Fully underwritten permanent life insurance: Guaranteed and simplified issue policies are both forms of permanent life insurance, but they aren’t subject to the much more stringent process required by traditionally underwritten life insurance policies. If you need more coverage, consider applying for a whole or universal life insurance policy that requires accelerated or full underwriting.

Term life insurance: Term life insurance is not designed to cover you for life, but rather for a period of one to 30 years. It pays a death benefit but has no cash value. Most term life insurers require applicants to answer health questions, and some may ask you to undergo a medical examination. “Instant issue” policies ask few health questions and don’t require an exam, but may limit coverage amounts. Some term policies, called convertible policies, may allow you to convert the policy into permanent life insurance without having to provide evidence of insurability.