How Much Coverage Does Guaranteed Issue Life Insurance Actually Guarantee You?

Perhaps you've seen ads for guaranteed issue life insurance. The message is always the same; "Get approved for guaranteed issue life insurance with NO medical exams and NO medical questions!" But how much guaranteed coverage can you really get from guaranteed issue life insurance? What makes guaranteed issue life insurance different, and are there other available options?

Why it's different
A guaranteed issue life insurance policy will insure whoever applies for it, no questions asked. It's different from life insurance that advertises "no medical exam," because the life insurance company could still turn you down for those policies based on health and eligibility questions you answer.

Typically, guaranteed issue life insurance is marketed to senior citizens or those with medical problems. Since the insurance company assumes you are much more of a risk, the coverage and premiums will reflect that. You generally can't purchase more than $20,000 of coverage, and premiums are higher than normal.

Available options and risks
Insurance companies base your rates on your age and medical information, so it usually makes sense to buy traditional life insurance if you can pass a medical exam and answer health questions. You will probably pay less and have better coverage.

What makes guaranteed issue policies risky is that, because of the high premium cost and low coverage amount, you could pay more in premiums than your beneficiaries will see in death benefits. Some states have adopted laws requiring the life insurance company to notify you prior to purchase of the time it takes to reach this point, but some have not.

How the insurance company prevents fraud
Some life insurance companies added a "graded benefits clause" to guaranteed issue life insurance policies to protect themselves from fraud. Graded benefits clauses state that if the policyholder dies within two to three years of buying the policy, the company will refund the premiums paid, plus interest, instead of paying out the death benefit. This prevents people from purposely buying a policy just before their death. As with all types of insurance, guaranteed issue life insurance can't be used to pay for something that's about to happen. A few companies may pay out full death benefits in the event of an accidental death – but the definition of accidental death is very limited.

Top 10 Things to Know About Life Insurance

Life insurance can be a great way to get protection for now and to plan for the future. After all, we want to make sure that our plans and loved ones are taken care of for as long as possible. Doing research ahead of time helps you get the best possible coverage at the right price. Here are some helpful facts and ways they can help you.

1. Shopping around can save money
As with most insurance, when it comes to life insurance, it pays to shop around because premiums can vary widely. And thanks to the Internet, it's now easier than ever. From research, to quoting, to buying a policy, there's never been so much information available. Even if you need to speak to an agent or company, shopping on the Internet first can make your discussion more efficient.

2. Having enough coverage is crucial
If you need life insurance enough to buy it, you also need to make sure you're not underinsured. It's important not to have too little coverage, because then you won't get the benefits you need. If you don't think you can afford life insurance, explore your options, because it's often cheaper than you'd expect. However, if you can't afford all the insurance you need right now, start with a smaller amount. You should be able to buy more at a similar price when you can afford it.

3. The healthier you are, the better the rates
It's true—healthy people get better rates on life insurance. You will be asked to pay a higher rate for anything that shortens your life expectancy (e.g., smoking, taking regular prescriptions, engaging in risky activities, and being overweight). Consider what small lifestyle changes you can make that will improve your health and possibly your rates.

4. Buying sooner rather than later can help
If you've been putting off purchasing life insurance because you don't want to pay the premiums, you may be doing yourself a disservice in the long run. The younger you are when you purchase life insurance, the lower your premiums will be. In addition, it's harder to get life insurance if you have some of the conditions that come with growing older.

5. It's important to regularly review your coverage
The end of one year or the beginning of the next is a good time to examine your insurance needs. Any life change signals the need for a review of your overall financial plan. When it comes to life insurance, you'll want to make sure your coverage still matches the changes you've made. Marriage, the birth of a child, and impending retirement can all have an effect on the insurance you need and the coverage amount that's appropriate.

6. There are different types of life insurance
Different types of life insurance have different characteristics and are intended to accomplish different things. For instance, term life insurance is generally designed to provide the maximum amount of protection for the smallest premium dollar, but only for a set period. On the other hand, cash value life insurance offers benefits for your entire life and an investment and savings component, although at a much higher premium cost. In the majority of cases, term life insurance is the better choice.

7. You might pay more by choosing monthly premium payments
You may not realize it, but your life insurance might cost more if you pay your premium in monthly installments. Many insurance companies offer a discount if you pay your premium annually rather than monthly. Although the overall cost and benefits of the policy are more important than getting a discount, you might get a lower price by paying annually.

8. You shouldn't rely solely on the life insurance offered by your employer
Many employers offer their employees group life insurance. However, this coverage is usually not enough to adequately meet your life insurance needs. More importantly, group life insurance policies from your employer are not portable, meaning that if you leave your job, you lose your life insurance coverage.

9. You should tell the whole truth and nothing but the truth
If you lie or omit information on a life insurance application, your life insurance company may be able to terminate your coverage. They may also be able to charge you for the higher premiums you should have been paying, or deny claims. For this reason, make sure to answer all questions fully. There are many different life insurance companies, and even if you don't qualify for the best rate from one of them, you may still be able to get a good rate from another.

10. Buying more can be cheaper
Life insurance usually costs progressively less per thousand dollars at higher coverage amounts (e.g., $250,000). That means doubling your coverage generally won't double your premium. If your life insurance needs increase, be sure to explore your options. It may not cost as much as you think to buy more coverage.