Guaranteed issue, simplified issue and full underwriting at 65

At 65, a life insurance application can go down one of three roads. In full underwriting, the insurer asks detailed health questions, may order an exam and your medical records, and prices the policy to your health. In simplified issue, it asks a short list of questions and checks databases instead of examining you. In guaranteed issue, it asks no health questions and accepts everyone in the eligible age range. Each step down in screening buys speed and certainty and costs money per dollar of coverage, and the two lower steps usually come with limits on what the policy pays in the early years.

The practical rule is to apply at the most-screened level you can realistically pass, because that level is usually the cheapest and pays in full from day one. This post lays out the three side by side, works through a cost comparison with invented round numbers, and finishes with a decision list.

What the insurer is trying to do at each level

An insurer's pricing assumes a mix of applicants. If it knows less about each applicant, it must assume a riskier mix, and it protects itself by raising the price, capping the amount, or delaying full payment. The three levels sit on a line from "the insurer learns a lot about you" to "the insurer learns nothing."

Full underwriting. The insurer collects the most information: a detailed application, a medical exam in many cases (see the life insurance medical exam: what to expect), lab work, a check of your prescription history and the The MIB report: what insurers know about your history, and sometimes an attending physician statement from your doctor. The reward for a clean picture is a better rate class. The cost is time and the chance of a surprise, such as a higher rating or a decline.

Simplified issue. The insurer asks a handful of yes/no questions, often 5 to 15, and checks databases. A "knock-out" answer, such as certain recent diagnoses, usually ends the application. There is no exam. Approval can come in minutes to days. See simplified issue life insurance.

Guaranteed issue. There are no health questions. The only requirements are age and state of residence. To protect itself from adverse selection, the insurer limits the face amount, charges more, and pays a reduced benefit for natural death during a waiting period. See guaranteed issue life insurance: no health questions, with limits.

The three side by side

The table summarizes how each level generally works for a buyer around 65. Details differ by company and product, and eligible ages vary, so confirm each point for the specific policy.

A few notes on the table. "Reasonable health" at 65 does not mean perfect. Many people with treated high blood pressure or high cholesterol qualify for good classes. And "the benefit in the first years" is the row that most often surprises families, because the sticker price of a policy says nothing about what it pays in month eight.

A cost comparison, worked through

The figures below are hypothetical and rounded to make the arithmetic visible. They are not market prices and no company's rates are implied.

Say a 65-year-old wants $20,000 of permanent coverage to pay final expenses. Three policies are quoted:

Each row follows the same steps. Monthly premium times 12 gives the annual premium. Divide by the number of thousands of coverage, here 20, to get the cost per $1,000 per year. For the guaranteed row, $165 x 12 = $1,980, and $1,980 / 20 = $99.

Now stretch the numbers over time, because these are permanent policies with level premiums that are meant to be paid for life.

At year 10 the guaranteed buyer has paid $19,800 for a $20,000 policy. That is not an argument against buying it. A person who dies at 80 gets the full $20,000 and the insurer has held the money for years. It is an argument for being honest about the arithmetic: the more screened the policy, the less you pay for the same promise, and the person who qualifies for the cheapest route and chooses a dearer one is paying for convenience or for an insurer's caution.

The difference between the cheapest and the most expensive route is $99 minus $60, or $39 per $1,000 per year. On a $20,000 policy that is $780 a year, or $65 a month.

The waiting period in dollars

The reduced benefit is the cost that does not show up in the premium. Suppose the guaranteed-issue policy has a two-year graded benefit that pays premiums paid plus 10% for a death from natural causes, and the full $20,000 after that. Accidental death, as in many such policies, pays in full from the start. Check your policy for its exact wording.

• Death from illness in month 8: premiums paid are $165 x 8 = $1,320. Plus 10% is $1,452. The family receives about $1,452, not $20,000.
• Death from illness in month 18: premiums paid are $165 x 18 = $2,970. Plus 10% is $3,267.
• Death from illness in month 26: the waiting period has ended, and the policy pays $20,000.
• Death from an accident in month 8: the policy pays $20,000.

A family that planned on $20,000 and receives $1,452 may have to borrow or use a credit card for the funeral. how a graded death benefit pays out in year one, two and three works through more combinations of timing and cause. The point for this decision is simple: the waiting period matters most to someone who has a real chance of dying in the next two or three years, which is exactly the group that tends to buy guaranteed issue.

For the simplified and fully underwritten routes, ask the same question, because some simplified products offer more than one tier. An applicant with a borderline answer can be offered a graded tier at a similar premium to the level tier. Always ask which tier the quote reflects.

Speed, privacy and the application itself

Speed. Full underwriting takes the longest because someone must schedule the exam, wait for lab results and sometimes wait on a doctor's office to answer a request for records. See how long it takes to get life insurance for the usual steps. Simplified issue is quick because it relies on databases. Guaranteed issue can be fastest of all. If a family member is seriously ill and coverage is needed urgently, speed can matter, but remember that coverage bought after a serious diagnosis is often what guaranteed issue exists for, with its waiting period.

Privacy. Full underwriting gives the insurer the most information about you. It also generates an MIB record. The The MIB report: what insurers know about your history guide explains what the record holds and how to see your own.

Accuracy. Every level that asks questions depends on honest answers. If you die in the first two years and the insurer finds a material misstatement, it can investigate and may reduce or deny the claim; the the two-year contestability period and lying on a life insurance application explain how. Guaranteed issue asks no health questions, so there is little to misstate.

Why try the most-screened route first

Three reasons point the same way.

1. Price. In the example above, the most-screened route was $39 per $1,000 per year cheaper than the least-screened.
2. Benefit. The more screened policies usually pay in full from the start.
3. Face amount. More screening usually allows larger coverage.

Some practical sequencing helps. Ask an agent to quote the fully underwritten and simplified routes together, since agents who work with several insurers can see both. If you are declined or rated heavily, move down a level rather than giving up. Each application is recorded in the MIB, so apply with a plan rather than to many companies at once. A decline on one product does not always mean a decline on another, and some companies offer a graded product to applicants who miss a standard tier. Declined for life insurance? What to do next covers what to do next.

If you are in good health and only need coverage for a limited time, term insurance may also be an option at 65, though the maximum issue age varies and premiums rise steeply with age. See life insurance for seniors: what's available after 65 for the full menu.

Three hypothetical applicants

These are invented to show the thinking, not to suggest what any real applicant will be offered.

Marta, 65, treated blood pressure and otherwise healthy. She wants $25,000 for final expenses. Because her only condition is well controlled, she asks for a fully underwritten quote and a simplified quote. Fully underwritten is cheaper, but needs an exam and takes a few weeks. She is not in a hurry, so she starts there. If the exam shows a problem, she can move to simplified.

Walter, 65, a stent placed eight months ago. He expects to answer "yes" to a recent heart procedure on a simplified application, which may end it. A fully underwritten application is possible, but he may be rated or postponed. He asks an agent to submit to a company that considers recent cardiac events, understanding he may be offered a graded policy. If he cannot qualify, guaranteed issue remains a fallback, with the waiting period in mind. He also asks whether his family could cover the first two years from savings.

Lucille, 65, on oxygen at home. Simplified issue will probably decline her, and full underwriting is unlikely to produce an offer. Guaranteed issue is her realistic route, and she asks for the benefit in dollars for each of the first three years. She also asks whether a savings account would do the same job at lower cost and whether she has an old group policy to convert; check whether an old employer policy offers a conversion option.

four 70-year-olds with different health: which policy fits each follows a similar approach for four people at 70, and full, simplified and guaranteed underwriting compared by health profile ranks the routes by health profile.

Moving up a level later

The choice at 65 is not always permanent. Health changes, and so does the menu.

Someone who buys a guaranteed issue policy because of a recent diagnosis may, a few years later, be stable enough to pass a simplified questionnaire. Switching can lower the cost per $1,000 and remove the waiting period, but it has its own hazards. A new policy starts a new the two-year contestability period, so every answer on the new application has to be accurate. The old policy should stay in force until the new one has been issued and the first premium paid, because a gap leaves nothing behind. And the cost already paid into the old policy is not refunded, so compare the remaining premiums and the future benefit of each, not just this month's bill. replacing a life insurance policy: when it makes sense covers the checks that apply to any replacement.

Going the other way is also possible: a person who passes a simplified questionnaire but is offered a graded tier can ask the agent whether the company offers a later review of the tier, or whether another company would place them in the level tier. Practices vary, and a quote is not a promise, so ask in writing.

Questions to ask before you apply

A short list keeps an agent's answers concrete.

• Which of these three routes am I eligible for with my health history, and can you quote the fully underwritten one too?
• Is the premium level for life, and is the face amount guaranteed not to shrink?
• What exactly does the policy pay if I die of an illness in month 6, month 18 and month 30? What if the death is accidental?
• Does the waiting period run from the application date or the policy date?
• If I am declined, will you tell me why, and does that affect an application elsewhere?
• What happens if I miss a payment? How long is the grace period?
• Does the company offer a conversion or an upgrade to another tier if my health improves?

If the agent cannot answer the dollar question for the first two years, ask for it in writing before paying anything.

A decision list

1. If you can pass a short health questionnaire and a fully underwritten quote is available, get both and compare cost per $1,000 and the benefit schedule.
2. If you have a recent serious diagnosis that would end a simplified application, ask which companies take that condition before settling on guaranteed issue.
3. If you are declined everywhere, guaranteed issue may be the only way to buy a policy, so choose the shortest waiting period you can find.
4. If the family could pay for the funeral from savings, consider whether any policy is needed. The final expense and funeral cost calculator helps put numbers on it.
5. If your income is fixed, choose a premium you can pay for the rest of your life. A lapse in the early years can mean paying for nothing.
6. Before signing any route, use the free-look period to read the policy and confirm the schedule.

Key takeaways

• Full underwriting, simplified issue and guaranteed issue trade screening for speed and certainty; the less the insurer learns, the more you generally pay per $1,000 and the smaller and slower-to-pay the policy tends to be.
• In the worked example for a hypothetical 65-year-old buying $20,000, cost per $1,000 per year ran $60, $75 and $99, so the least-screened route cost $780 a year more on the same coverage.
• The waiting period is a cost that does not show in the premium: in the example, an illness death in month 8 of a guaranteed policy paid about $1,452 instead of $20,000.
• Try the most-screened route you can realistically pass first, move down a level if you are declined, and ask for the benefit schedule in dollars.
• If savings can cover the expenses, ask whether you need a policy at all.