If you’re a little skeptical about the word “guarantee”, then you are not alone. When you’re in the market for a new product or service, you want to know exactly what is guaranteed. You want to look at the fine print. What are the terms? What’s the catch? In this article, we will look at guaranteed acceptance life insurance pros and cons. After reading, you will know “the terms” and whether this product is a good fit for you.
Another name for guaranteed acceptance is guaranteed issue life insurance. Unlike standard life insurance, you complete an application for life insurance and your acceptance is guaranteed. Simply put, you can’t be declined.
Let’s be clear. Guaranteed acceptance is designed for people with very serious health conditions. If you have been declined for life insurance (or told that you’re not insurable), then guaranteed acceptance might be your only option.
How do carriers do this? They understand that they might issue a policy to someone with a terminal illness. So, what’s the catch? You will pay a high premium for a limited amount of coverage.
How Does Guaranteed Acceptance Life Insurance Work?
Graded Death Benefit
Most guaranteed acceptance policies are issued with a graded death benefit. Another name for graded death benefit is modified death benefit. If you die due to an illness during the first two years the policy is in force, your beneficiary will just receive a refund of the premiums paid, plus 10%. After two years, the full death benefit is available.
Some carriers will pay an increasing percentage of the death benefit as follows:
- Year 1: 30% of the Death Benefit is paid.
- Year 2: 70% of the Death Benefit is paid.
- After Year 2: The full Death Benefit is paid.
If you die due to an accident, then the policy pays the full death benefit. No waiting periods.
If the policy did not have a graded or modified death benefit, then anyone with a terminal illness (and a life expectancy of less than 2 years) would purchase a policy.
The face amount for guaranteed acceptance life insurance is quite low. Typically, carriers offer a minimum face amount of $2,500 and maximum of $25,000. Some carriers offer these products with face amounts as high as $50,000.
PROS of Guaranteed Acceptance Life Insurance
“Half of all consumers say they are more likely to purchase life insurance if it’s priced without a physical examination.”
- Convenient: You can complete an application online or over the phone.
- Quick Process: Most applications take less than 10 minutes to complete. Typically, applications are approved within a few days.
- No Needles or Health Questions: No exam or medical records are required. You do not need to answer any health history questions.
- No Doubt About the Outcome: This may be redundant, but your approval is guaranteed regardless of your situation.
We’ll spend a little more time on the negatives or “cons”. We want to make sure you understand the “fine print”.
Cons of Guaranteed Acceptance Life Insurance
- Expensive: Before applying for a guaranteed acceptance policy, it’s important to know it is your only option. The premium is quite high. Oftentimes, you will pay from 3 to 5 times more than a Standard or Preferred Non-tobacco policy that is medically underwritten. If you’re just looking for a quick and convenient way to purchase life insurance, please read below.
If you need paper towels, then you can make a quick and easy trip to the nearest gas station or convenience store. Alternatively, you can spend a little more time and pay half the price at Costco or Sam’s Club. Of course, sometimes the convenience is worth it. If you’re on a camping trip and need supplies – then a nearby convenience store is a great option!
However, when it comes to life insurance, your costs are much, much higher. Let’s look at an example.
Brief Case Study:
We had a client who purchased a life insurance policy through Mutual of Omaha. The guaranteed issue policy was offered as a result of owning a Medigap policy with them. The premium was $42 per month for a $10,000 permanent policy. It was quick and easy.
However, this client was in excellent health at age 65. We explained to her that she would qualify for $25,000 policy for the same premium. She would not need to take an exam. It was a simplified-issue policy. She had to answer health questions and the carrier would check a few databases. They also reserved the right to request medical records.
She decided it was well worth the extra time (10 days) and effort. She was approved as applied for. So, she has 2 1/2 times the coverage for the same price! Convenience is nice, but not when the price tag is so high.
Limited Face Amount
Most carriers limit the face amount to $25,000 on guaranteed acceptance policies. If you’re simply looking for a “final expense” policy, then this might be an adequate amount. However, if you want or need more coverage, then your options are limited. Of course, this assumes you can’t qualify for a medically underwritten policy.
Limited Options (for a higher cost)
Generally speaking, less stringent medical underwriting means higher premiums. There are exceptions. Times are changing with technological improvements. More and more carriers are offering streamlined underwriting as cost-saving and time-saving measures. A few simplified-issue products are priced just as competitively as many fully underwritten products. However, you will find limits on the face amounts.
If you select a guaranteed acceptance policy, you will have limited riders (optional benefits) and limited carriers from which to choose.
A strategy to consider.
Let’s say you are worried about getting declined. For example, you haven’t been to the doctor in a while and you’re concerned about your health. You don’t want to get declined and have a permanent record on the MIB. Consider starting with a guaranteed acceptance policy. Once approved, you can then apply for a simplified issue policy. If you are approved, then simply replace the higher cost policy.
Guaranteed Universal Life Insurance is NOT Guaranteed Acceptance Life Insurance
We have written quite a bit about this product (GUL) in other posts. However, let’s look at the guarantee closely so you understand the difference.
Guaranteed universal life insurance refers to the fact that the premiums and death benefit are guaranteed. The guarantee has nothing to do with underwriting approval. The word guarantee in this product name can be a little confusing. The purpose of using the term “guarantee” is to distinguish this UL product from other types of UL products that are not fully guaranteed.
You might have done an online search for guaranteed life insurance. You’ll find an abundance of mixed results. For the most part, you’ll find sites that offer quotes for guaranteed acceptance life insurance.
Let’s say you want a guaranteed life insurance product. However, you don’t want term or whole life. Perhaps you heard that universal life insurance was better or less expensive than whole life. So, you search online for guaranteed universal life insurance. This happens all the time! We know because we receive the calls and inquiries. What you’ll find in the results are many websites that focus on GUL, not guaranteed acceptance insurance.
Hopefully, understanding this distinction will help you in your search.
Guaranteed Acceptance Life Insurance Pros and Cons – Conclusion
If you think that guaranteed acceptance life insurance is the best option for you, then proceed with caution. If you decide to work with an agency that specializes only in this type of product then you could do yourself a disservice. There could be a simplified issue policy available to you at a much lower cost. Even if you think (or were told) you were uninsurable, don’t accept that as the final answer. It’s best to work with an independent agent who has access to the full spectrum of life insurance products.
Make sure you explain all the details of your health history (if you want) to ensure your agent shops the market and does proper underwriting assessments. Again, this will assure you that you’re getting the best possible offers.
If it is determined that guaranteed acceptance life insurance is your only option, then consider the cost/benefit carefully. Calculate how much premium you will pay over time and what death benefit your loved ones will receive. You don’t want to realize several years into the policy that you can’t afford it long-term and need to cancel. This product could be just right for you; just take your time to consider all your options.
Finally, it’s best to work with an independent agent with at least 10 years experience and a solid reputation. We are glad to help, so please call or email us anytime.