3 Pros and 3 Cons of Guaranteed Issue Life Insurance

Don't buy guaranteed issue life insurance without weighing the advantages and disadvantages of this type of coverage.

Guaranteed issue life insurance is often available even to people who wouldn't qualify for most term or whole life insurance policies. While it may sound attractive to apply for a policy with guaranteed approval, there are some serious downsides to this type of life insurance as well.

Before buying guaranteed issue life insurance, consider these advantages and disadvantages.

Advantages of guaranteed issue life insurance

1. Medical conditions aren't disqualifying

Most types of life insurance policies require a medical exam and a detailed health history. The purpose of both is to discover what medical conditions the person buying coverage may have.

Some pre-existing conditions disqualify people entirely from buying standard term or whole life insurance. But this isn't a concern with guaranteed issue life insurance. Virtually anyone who wants to buy a guaranteed issue policy can, and there's essentially no risk of being denied a policy.

2. Age isn't disqualifying

Many insurers have an upper age limit for buying term or whole life insurance. This varies by insurer but could be as young as the late 60s or early 70s. Unfortunately, sometimes people don't realize the importance of getting insurance to protect their families from financial loss until late in life.

Guaranteed issue policies are usually available even for much older people who can't qualify for standard coverage. Seniors who don't want to leave loved ones with high funeral costs or other big end-of-life expenses may find guaranteed life insurance is their best or even only option.

3. Coverage is usually in effect for life

In most cases, a guaranteed issue life insurance policy remains in effect for life, as long as the policyholder keeps paying premiums. Unlike with term life insurance, the death benefit payout isn't only available during a limited number of years.

Disadvantages of guaranteed issue life insurance

1. Policies are expensive

Premiums for a guaranteed issue policy are high for the amount of coverage it provides. And a guaranteed issue policy is always more expensive than a standard policy (with a medical exam) for someone who is young and healthy.

2. Coverage limits are low

In most cases, there's a low maximum death benefit with guaranteed issue coverage. For example, many insurers limit policyholders to buying no more than $25,000 in protection. This can help cover funeral costs and pay some expenses but doesn't do much to offer long-term protection from financial loss for surviving family members.

3. There's usually a waiting period

Guaranteed issue policies usually have a waiting period before the full death benefit kicks in. For example, the death benefit may phase in over several years, with beneficiaries receiving only a portion if the policyholder dies within a year or two of purchasing coverage.

For all these reasons, it's best to consider carefully whether guaranteed issue coverage is really the best choice or whether it's a good idea to explore other options for coverage.