Guaranteed issue life insurance policies guarantee insurance to anyone, regardless of any health conditions. That may sound very risky for insurance companies. They hedge their risks in two ways.
The first way is that guarantee issue life insurance has graded benefits. What this means is that if the insured person should die within a specified time period, their beneficiaries receive only a portion of death benefits (or none if it is a contestable period). A majority of the policies for guaranteed issue life insurance will only pay out full benefits two years after the policy has been issued. So if an individual buys a guaranteed life insurance policy in 2007 and then dies from cancer in 2008, the beneficiary will get none or only a part of the death benefit.
The second way that insurance companies profit from guaranteed issue life insurance is charging higher premiums. There are also age limits for these types of policies (usually someone older than seventy will not be insured).
Guaranteed issue life insurance is whole life insurance, but has higher premiums because no one is denied. What this means is the guaranteed life insurance policy accrues cash value over a period of time (generally this is after the first few years). Part of the premium pays for insurance and part builds up cash value.
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Because it is permanent life insurance, premium rates and death benefits don’t change. Guaranteed issue life insurance is valid for life as long as the premiums are paid.
Most policies still pay the entire amount of the death benefit if the insured dies as the result of an accident. This is usually the only reason. So if you were to find out that you have only three more months to live, guaranteed issue life insurance can’t benefit you.
Because everyone is eligible for these policies there are no medical exams or medical history required for guaranteed issue life insurance. Only very general questions are asked like name, address and age.
A majority of guaranteed issue life insurance policies do have a limit on the death benefit. Most policies are not for over $50,000. One of the major reasons people get guaranteed issue life insurance policies is to pay for things like burial expenses, medical bills and debts of the estate.
You will still be able to withdraw cash value from the policy on guaranteed issue life insurance to pay for emergency expenses that you have while you are alive. You can withdraw money and accept lower death benefits or end the policy. Or another option is you can borrow against the policy’s cash value and retain the death benefit once you have repaid the loan.
Guaranteed issue life insurance is not necessarily for everyone. However, if you are having a hard time getting other types of insurance due to a health condition and you are expected to live for two years or more, your only option may be guaranteed issue life insurance.
