Is Guaranteed Life Insurance Worth It?

As long as you meet the age requirements, you can purchase a guaranteed life insurance policy regardless of your health. However, while these policies are widely advertised and simple to obtain, they may not be the best option for you.

Understanding Guaranteed Life Insurance

Guaranteed life insurance is a type of whole life insurance that is also known as guaranteed issue or guaranteed acceptance life insurance. People can purchase a policy without having to take a medical exam or answer health-related questions, which may disqualify them from other types of life insurance. Guaranteed life is frequently promoted with slogans such as "we guarantee that we won't turn you down" to emphasize that selling point.

In comparison to other types of life insurance, guaranteed life insurance has a low death benefit, typically ranging from $5,000 to $25,000, depending on the company and the policy. A 70-year-old woman in Illinois would pay $38.23 per month for a $5,000 policy from Gerber Life Insurance, while a $25,000 policy would cost her $187.46 per month. (This includes the savings she'd get from setting up automatic monthly payments from her bank account.) Those premiums would remain the same for the life of the policy, as with most guaranteed life insurance policies.

How the death benefit works

A guaranteed life insurance policy must typically be in force for a set period of time, such as two or three years, before the policyholder dies in order for the beneficiary to receive the full death benefit. If the policyholder dies before then, the beneficiary will receive a reduced (or "graded") death benefit.

Consider the policy offered by American General Life, a major insurer. If the policyholder dies of natural causes within the first two years, it will pay an amount equal to 110 percent to 120 percent of the premiums paid. In the event of an accidental death during that time, the beneficiary would be entitled to the full death benefit. If the policyholder dies within two years, regardless of the cause of death, the beneficiary will receive the full death benefit.

Although the two products are similar, guaranteed life insurance should not be confused with simplified issue life insurance. Simplified issue life insurance, like guaranteed issue life insurance, does not require a medical exam. The applicant must, however, answer some health-related questions, which the insurer uses to determine their eligibility for a policy and, if accepted, the rates they'll pay. Simplified issue life insurance can also be purchased as a term life policy rather than a whole life policy.

Who Is Guaranteed Life Insurance For?

Guaranteed life insurance is typically marketed to people aged 50 to 80 or 85. As long as the policyholder continues to pay their premiums, the policy will remain in effect for the rest of their lives.

Because of the low death benefit, policyholders frequently purchase a guaranteed life insurance policy to cover their final expenses, such as a funeral, or to pay off any minor debts they leave behind. In this regard, it is comparable to final expense or burial insurance. Guaranteed life insurance and burial insurance are both whole-life policies with a small death benefit. However, burial insurance may require the applicant to provide some information about their health.

People may also purchase guaranteed life insurance under the mistaken belief that it is the only type of insurance available to them due to health issues. In fact, having a chronic, pre existing condition does not necessarily preclude you from obtaining other types of life insurance, though it may make them more expensive. Cancer, diabetes, heart disease, high cholesterol, hypertension, obesity, and some mental health issues, such as anxiety and depression, are among the conditions that life insurers focus on.

According to the Guardian Life Insurance Company, which sells whole life and term policies, applicants with preexisting conditions can improve their chances of getting coverage and lower their rates by adhering to a medically supervised treatment plan, exercising regularly, and losing weight if necessary.

Alternatives to Guaranteed Life Insurance

For those who qualify, a regular insurance policy, whether whole life or term life, has several advantages over a guaranteed life policy. For starters, a traditional policy is likely to be significantly less expensive in terms of how much coverage each dollar of premiums will purchase. For another, if the policyholder requires one, they may be able to purchase a larger death benefit overall.

In general, term life is the least expensive type of life insurance, while whole life is significantly more expensive. Simplified issue whole life insurance will be even more expensive, and the most expensive of all is a guaranteed life policy.

Who might be interested in guaranteed life insurance?

It's usually sold to people aged 50 to 80 who want a small life insurance policy ($5,000 to $25,000) to cover final expenses. With a relatively low death benefit, the policies are frequently used to cover costs such as a funeral or to pay off any small debts left behind.

What are the drawbacks to guaranteed life insurance?

The most expensive insurance is guaranteed life. This is due in part to the fact that people can purchase a policy without having to take a medical exam or answer questions about their health, which may disqualify them from other types of life insurance.

The Bottom Line

Before settling for a guaranteed life policy, anyone looking for life insurance should see if they qualify for a regular policy. Even if a guaranteed life policy is their only option, they should shop around to compare prices. They should also compare the time it takes for each policy's full death benefit to become available, just in case. An independent insurance agent familiar with these policies and the companies that provide them may also be able to assist.