How Does Guaranteed Life Insurance Work?

Guaranteed issue life insurance–also referred to as ‘guaranteed acceptance life insurance’–is a form of permanent life insurance. Permanent life insurance is guaranteed to remain active for the duration of the policyholder’s lifetime, as long as required premiums are paid or up until the policy’s maturity date, if applicable.

A key difference between guaranteed versus non-guaranteed life insurance is that non-guaranteed life insurance often requires policy applicants to submit information such as medical and prescription records or undergo a medical exam before approving or denying a policy. Guaranteed issue life insurance typically does not hold those same requirements.

In this article, we’ll dive into the intricacies of guaranteed issue life insurance, including how it works and who can benefit from a guaranteed issue life insurance policy.

Guaranteed issue life insurance is a type of permanent life insurance. A major benefit of many other types of permanent life insurance policies is that they give policyholders the opportunity to build cash value. This accumulated cash value can help pay for major milestones–such as college funds or for retirement–or help pay for unexpected costs due to an emergency. However, guaranteed issue life insurance policies do not typically build cash value.

What makes guaranteed issue life insurance stand out from other permanent life insurance policies is that they are considered a type of ‘no health questions’ life insurance. This means policy applicants typically don’t answer health-related questions or undergo a medical exam, and the insurer does not usually request medical or prescription records.

Typically, when insurance companies ask for this type of information, it’s typically to assess what insurance rate to assign applicants or determine whether or not they can approve coverage for the applicant. With guaranteed issue life insurance, policyholders are more likely to be approved, but often pay a higher premium for the benefits.

Non-guaranteed life insurance has more flexibility, but that is offset by premiums that are typically more expensive. For example, the premium rate you pay during the first few years of the policy may increase later depending on relevant market scenarios.

This type of policy still provides coverage for life or until the policy's maturity date, and carries a death benefit much like other life insurance policies. These policies may also build cash value, which can also contribute to higher premium costs as compared to guaranteed issue life insurance policies.

With more traditional insurance policies that require a medical evaluation process, underwriters (professionals from the insurance company who assess your risk and determine whether your application is approved or denied) use your health information, along with other personal information, to make a decision about your application. 

In a guaranteed issue life insurance policy, there is usually no underwriting process that determines rates or eligibility. Instead, you are approved for a guaranteed life insurance policy if you fall within the age range determined by the insurer. Most qualifying age ranges are between 50-80 years old.

Because a guaranteed life insurance policy typically only requires the age of the insured, there are a few caveats. For example, most policies will not pay death benefits in the first two to three years of when the policy is issued. However, if the insured person dies during this initial period, most insurer’s will return the premiums paid, sometimes with interest.

Guaranteed life insurance policies typically have very low death benefit amounts, usually between $10,000 and $25,000. Bear in mind this amount usually only covers small debts, funeral costs, and certain medical bills.

The premiums for these policies are often higher as well, despite the smaller coverage available. This is because insurers take on more risk by not evaluating your health.

Guaranteed life insurance is recommended most often to individuals with medical conditions which make it difficult or cost-prohibitive to purchase traditional types of permanent life insurance. This insurance is best for individuals who want to leave behind a small legacy for relatives, pay for final expenses, and have a limited budget for life insurance.