Guaranteed issue life insurance: no health questions, with limits

Guaranteed issue life insurance accepts everyone in a set age range without health questions or a medical exam. In exchange, the policy is small, costs more per $1,000 of coverage than a policy built on your health, and usually pays only a limited benefit if you die of natural causes in the first two or three years. It is a last resort for people who have been declined elsewhere, not a first choice for people who can qualify for anything else.

How guaranteed issue works

Normal underwriting sorts applicants by risk: people in good health get low prices, people with serious conditions pay more or are declined. Guaranteed issue skips that step. Nobody is asked about diagnoses, prescriptions or hospital stays, and the insurer cannot decline you for health. Applicants only need to be in the eligible age range, which commonly falls somewhere in the 50s to mid-80s depending on the company, and to live in a state where the product is sold. Those details vary by insurer, so read the specific policy.

Because the insurer cannot screen out people who are already sick, it faces adverse selection: the applicant pool contains people who know they are in poor health and want coverage. The insurer protects itself in three ways:

• Low face amounts. Maximums are generally small. Many companies cap guaranteed issue at amounts such as $25,000 or less, and some at lower figures, though limits differ by company and state.
• Higher premiums. The price per $1,000 of coverage is higher than for a policy using health information, since the insurer prices for sicker applicants.
• A waiting period. Benefits are reduced during the first two or three years. This is the graded death benefits: why the first two years matter.

What the waiting period means in practice

The usual design pays the beneficiary only the premiums you paid, often plus interest (commonly around 10%), if you die of illness or natural causes during the first two or three years. After that period, the full death benefit applies. Many policies pay the full amount from day one if the death is accidental. The guide to graded death benefits: why the first two years matter explains the structure with worked numbers.

So a $15,000 guaranteed issue policy is not a $15,000 policy in year one. If you die of a heart attack in month 14, your family may receive only what you paid plus a small add-on. That can be a real shock for a family counting on it for a funeral. When you shop, ask for the exact schedule in writing.

A hypothetical comparison

The following figures are invented to show the pattern and are not market prices.

Say a 68-year-old has had a heart attack and cannot pass a simplified-issue questionnaire. She is offered a $10,000 guaranteed issue whole life policy for $90 a month.

1. Annual premium: $90 x 12 = $1,080.
2. Cost per $1,000 per year: $1,080 / 10 = $108.
3. If she dies in year 2 of natural causes, her beneficiary might receive premiums paid (about $2,160) plus interest under a typical two-year graded schedule, not $10,000.
4. If she dies in year 3 or later, the full $10,000 applies. By then she has paid about $3,240, and the full benefit continues as long as premiums are paid.

If she is later able to qualify for a policy that pays in full from day one, the lower price per $1,000 could make switching worthwhile, though a new policy means a new the two-year contestability period and must be weighed against what she has already paid.

Guaranteed issue vs simplified issue

Try simplified issue first. Some insurers offer a graded product to applicants who miss the best tier, so a "no" on one product is not always a "no" on another. Compare the whole market; our Declined for life insurance? What to do next guide covers other steps.

Who it fits, and who should skip it

It may suit you if:

• You have been declined or rated very high for health reasons.
• You have a condition such as advanced heart failure, recent cancer treatment or kidney failure that makes other policies unavailable.
• The family can cover the first few years from other money, and the policy fills a gap afterward.

Skip it or compare first if:

• You are in reasonable health. Even a person who takes blood pressure medication often qualifies for a simplified or fully underwritten policy that costs less and pays in full immediately.
• You expect to die within two or three years and the family has no other way to pay. A savings account may serve better.
• The ad says "no one turned down" but does not say how much it pays in year one. See Life insurance ads on TV: what "$9.95 a month" buys.

Checklist before applying

1. Get the benefit schedule for year one, year two and year three, for natural and accidental death.
2. Ask whether premiums and benefit are guaranteed not to change.
3. Check the insurer's financial strength and your state's state guaranty association coverage lookup limits.
4. Ask what happens if you miss a payment (life insurance grace periods and lapses).
5. Use the the free-look period: returning a policy for a refund to review the policy and cancel for a refund if it is not what you expected.
6. Compare the cost per $1,000 against at least one simplified-issue quote.

Key takeaways

• Guaranteed issue accepts you without health questions, but caps the face amount and charges more per $1,000 than health-based coverage.
• Most policies pay only a return of premiums, often with interest, for natural death in the first two or three years.
• Accidental death is often covered in full from the start, but read the policy to confirm.
• Try simplified or fully underwritten coverage first if your health allows.
• Ask for the benefit schedule in writing and use the free-look period to review the policy.