We often get asked questions along the lines of “My aging parent is very ill and medical bills have drained his/her savings account, but I cannot afford to pay for the funeral if he/she should pass away. Can I buy life insurance on my parent?” In this scenario, we do not advise purchasing “regular” fully underwritten life insurance. More often than not, term life insurance is going to be ideal for most people, but not in this scenario.
Why we wouldn’t recommend term insurance in this case…
Term life insurance would typically not work in this case because the coverage amount would be too small, the client would likely be uninsurable because of health issues, and the client’s age would be outside the range a life insurance company would approve coverage for.
What we would recommend…
When we get this question, we usually tell inquirers that they have two options:
- Take the money you would have spent each month on term insurance and instead put it into a savings account so it can start accruing interest. You can then access these funds later when in need of money for your loved one’s final expenses.
- Purchase a guaranteed issue life insurance policy.
What is a guaranteed issue life insurance policy?
Guaranteed issue life insurance is a type of life insurance that you cannot be denied coverage on, hence “guaranteed”. There are a few things you should know about this type of insurance.
- Guaranteed issue life insurance is typically known as “last resort” life insurance. It’s meant for those who may have been denied previously and/or are not in good health.
- Guaranteed issue life insurance policies are designed so that surviving loved ones can pay for your final expenses, such as a funeral, burial, and medical bills.
- Guaranteed issue life insurance premiums will never increase.
- A guaranteed issue life insurance policy accumulates cash value.
- Guaranteed issue life insurance policies have significantly lower death benefit amounts compared to term or permanent policies.
- There is no medical exam or questionnaire required for guaranteed issue life insurance. The only factor that is really taken into consideration is the age of the insured. Because of this, guaranteed issue life insurance premiums are higher per thousand than most other types of life insurance.
- Benefits are limited to the first two years. This is called a Graded Death Benefit period. What this means is that if you die within two years of buying the policy for any reason other than an accident, your beneficiaries typically only receive the total amount of what you paid in premiums. (This can vary depending on the carrier.)
So, if you’re in relatively good health, fully underwritten life insurance may be a better option for you. However, guaranteed issue life insurance is a great option for those with a desperate need.
How much does guaranteed issue life insurance cost?
While you can get millions of dollars’ worth of term life insurance coverage, guaranteed issue life insurance coverage often caps at $50,000. Again, its design is based around simply helping your surviving loved ones pay for your final expenses.
Quotacy works with Gerber Life to provide guaranteed issue coverage options. Gerber’s guaranteed issue policy is available in all U.S. states except for Montana. Take a look at the examples and table below to get an idea on what a guaranteed issue policy can cost.
John Smith is 55 years old and has been denied for traditional life insurance because of his Stage IV prostate cancer. He does not want to burden his children with his final expenses so he plans on purchasing guaranteed issue life insurance.
He’s automatically approved without having to undergo a medical exam or fill out any health forms. John obtains $20,000 in coverage and his premiums are $91.30 per month.
If John passes away within two years, Gerber Life will refund to his beneficiaries all premiums that had been paid plus 10% interest. However, if John happens to die because of an accident unrelated to his health within those two years, his beneficiaries will receive the full $20,000 death benefit. After two years, his beneficiaries will receive the full death benefit regardless of how he dies.
Jane Doe takes care of her 79-year-old mother Sally. Sally does not have any life insurance and Jane is worried that she won’t have the funds to give her mother the funeral she deserves. Jane decides to buy a guaranteed issue life insurance policy on Sally.
A $12,000 policy is enough for Jane to ensure she can pay for a proper funeral and burial. Sally is approved for coverage and the policy will cost $165.70 per month.
Although this type of policy is easy to acquire, it offers less coverage and higher premiums than traditional life insurance, so explore all your options. If you aren’t sure if guaranteed issue life insurance is the best choice for you or want more information, contact us here at Quotacy and we can help you.
Recap of Guaranteed Issue Life Insurance:
- If you’re between 50 and 80 years old, you can be accepted for guaranteed issue coverage regardless of your health.
- There are no medical exams to complete or health questionnaires to fill out.
- Cash value accumulates within the policy.
Remember, term life insurance quotes are free to run on and there is no penalty for applying. It doesn’t hurt to apply for term life insurance, then opt for the guaranteed issue if you end up being denied. The more options you have, the better decision you can make.