How Does Guaranteed Issue Life Insurance Work?
Article by Marilyn Katz
You may have noticed television or internet ads for guaranteed issue life insurance policies. These products, usually marketed to older people, claim to accept every applicant at the same rate. You may wonder if these products are too good to be true.
When you apply for life insurance, you usually have to answer a lot of health questions. Sometimes you even have to have a special physical so the insurer can make sure you are heathy. You may wonder how insurers can profit if they will accept everybody who applies. It would seem like lots of people with terminal illnesses would get a policy so they can leave millions of dollars to their families.
You should not spend a lot of time worrying about insurers They know how to profit. There are, of course, a couple of unique things about guaranteed issue policies that will insure this.
They are usually smaller face value policies, though they could be term or whole life. This smaller face value limit insurers that the companies will not risk a lot of money. Whole life may have a maximum benefit of twenty-five thousand dollars. A term policy may top out at about 0,000.
But even a few thousand dollars still adds up. So insurers usually have something called a graded death benefit on these policies. This means that insured individual will have to survive a waiting period before the beneficiaries are entitled to the entire death benefit. If the insured person passes away before this period is over, they beneficiaries may be able to collect a portion of the death benefit or get premiums refunded back to them. Sometimes the premium refund even comes with interest which is paid at a rate set in the policy.
This waiting period and graded death benefit protects the insurer. But, if the policy does refund premiums with interest, it is not a risky deal for the people purchasing insurance either. If the waiting period is NOT survived, the family may collect a lot of money. But they should not lose anything either.
Guaranteed issue policies are not for everybody. Many insurers have policies with immediate death benefits that they will issue to older people. These policies can still get issued for applicants with some health issues.
Policies with immediate death benefits may not require a medical exam, but they will probably ask a few health questions. These are usually simple Yes or No questions, and they are just meant to weed out very seriously ill people. We urge you to do some homework before you purchase a guaranteed issue life policy. You may want to determine if it is really something you need to buy. It will probaby cost less and have less limitations for you.
The main point of this article is to caution you not to buy the first policy you see advertised. It is always a good idea to understand what you are buying, and also to shop around to be sure you get the best deal for a person like you! These types of policies can work out well for some families, but they are not for everybody.
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