What is guaranteed life insurance?
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BLUEPRINT
Updated 2:38 p.m. UTC June 23, 2023
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Key points
- Guaranteed life insurance does not require a medical exam to qualify, making it an option for people in poor health.
- Guaranteed policies usually have smaller death benefits and higher premiums than traditional life insurance policies.
- These policies may impose a waiting period before the beneficiary can collect the death benefit, often lasting two or three years.
- These policies don’t make financial sense for most people, but those who can’t qualify for traditional policies might be interested.
Guaranteed life insurance sounds like a great deal. You don’t need to take a medical exam and won’t have to worry about completing a health questionnaire. That makes it an attractive option for individuals who have health complications or simply don’t want to deal with a lengthy application process.
But there are trade-offs, and guaranteed life insurance may not always be the best option. Here’s what you need to know about guaranteed life insurance, including the costs, who it’s best for and who may want to consider another life insurance product.
Guaranteed life insurance explained
Guaranteed life insurance, also known as guaranteed issue life or guaranteed acceptance life insurance, is a type of coverage that doesn’t hinge on your health. As long as you fall between the minimum and maximum age requirements, you’ll be approved for a policy — no medical exam or health questionnaire required.
Because your health is not factored into your premiums, guaranteed issue life insurance may be a good option for individuals who would otherwise not qualify for life insurance. It is more expensive than other options, however.
Both permanent and term guaranteed life insurance policies are available, though whole life policies are sold more frequently. In some cases, these policies will also include a cash value that you can borrow against. Term policies don’t offer that benefit.
In general, guaranteed acceptance life insurance will not provide as much coverage as you’ll find with other types of life insurance.
“Most of these have a cap of $25,000, which is a much smaller death benefit than other policies,” said Certified Financial Planner Steven Fox of Next Gen Financial Planning. “Term life, for example, is often multiple hundreds of thousands of dollars. That’s one of the biggest downsides.”
Fox added that the small benefit “could be helpful for covering funeral or final medical expenses, small amounts of credit card debt or something else [you’re] worried about leaving behind for a spouse or cosigner.”
It’s important to note that these policies also may include restrictions that prohibit your beneficiary from receiving the death benefit if you die within the first two to three years of purchasing the policy. Instead, the insurer may only issue a refund of premiums to your beneficiaries, often 10 to 30%. The exception is if you die due to an accident, like a collision. In this case, the insurer will typically pay the death benefit in full.
Before you purchase a policy, inquire about any restrictions that may affect your beneficiaries ability to collect the death benefit.
How much does guaranteed life insurance cost?
Guaranteed issue life insurance is more expensive than other life insurance policies. That’s because life insurance companies are taking on an extended risk without knowledge of your current health or medical history.
Fox noted, “Per unit of coverage, it’s going to be more expensive to get this policy.”
For example, a 70-year-old woman purchasing a $20,000 whole life insurance policy can expect to pay an average of $106 per month, based on our research. A guaranteed whole life insurance policy would cost that same woman $166 per month — $60 more each month or $720 more a year.
The price difference increases with age. The same whole life insurance policy would cost an 80-year-old woman an average of $199 per month, while a guaranteed issue whole life policy would cost her $343 a month, on average.
How much you’ll page for guaranteed life insurance depends on your age, gender, location and the insurer and coverage you choose.
Ethos
What you should know
If you’re looking for quick coverage and a large death benefit, consider Ethos Term Life. Eligible applicants can get instant approval and coverage for up to $2 million.
Pros and cons
Pros
- Policies up to $2 million available.
- Instant application approval.
Cons
- Can’t convert to permanent life insurance policy.
More details
Ethos example premiums for a 20-year term policy
Who should buy guaranteed life insurance?
There are some situations when guaranteed life insurance could make sense. For example, if you find that you can’t qualify for traditional life insurance and absolutely need coverage, guaranteed acceptance life insurance is an option.
Another reason to consider guaranteed life insurance is if you’re only looking for a small amount of coverage, such as $25,000 or less. This is often the case for individuals who are looking for a policy to cover final expenses or burial insurance. A guaranteed life insurance policy allows you to avoid a complicated underwriting process and medical exam while still securing a death benefit for your loved ones.
Who should not buy guaranteed life insurance?
If you can qualify for another type of coverage, like term life or whole life insurance, and the rates are affordable, guaranteed life insurance is likely not for you. The same is true if you are looking for a policy with a significant amount of coverage, as guaranteed issue policies usually only offer death benefits of $25,000 or less.
Some guaranteed life insurance policies have a minimum age requirement, often 40 or 50 years old. If you’re younger than the minimum age required by the insurer, you won’t qualify for coverage.
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