What is guaranteed acceptance life insurance?
A guaranteed acceptance life insurance policy, also known as a guaranteed issue life insurance policy, forgoes medical underwriting and a health questionnaire to deliver a sum of money to beneficiaries. It’s classified as final expense life insurance, a type of permanent or whole life insurance policy whose primary goal is to furnish funds for end-of-life expenses, such as funeral costs.
There is a waiting period of usually two to three years, during which the policyholder must pay premiums on the insurance policy before the full death benefit can be paid out. Most life insurance companies have a standard protocol that applicants should be between the ages of 40 and 85 to apply, and almost no one is turned down.
Underwriting is the process in life insurance of determining premiums and also authorization of the policy. Underwriters use various sources for their determination, such as an attending physician’s report, the Medical Information Bureau (MIB), and a medical exam. They also take your age into consideration, and with traditional life insurance policies, the older you are, the higher the premium if you qualify. Older people or individuals with illnesses or health issues may not qualify for a traditional life insurance policy.
In addition, traditional whole life insurance policies have policy exclusions. Some examples of exclusions are dangerous occupations and hobbies, illegal activity, and alcohol and drug use. If you participate or have participated in hazardous or illegal activity or have a history of substance abuse, your chances of qualifying for a traditional life insurance policy are minimal. With a guaranteed acceptance life insurance policy, peace of mind regarding final expenses is more certain.
In an effort to encompass the community of people with health conditions, the life insurance industry has implemented various life insurance options in the form of riders to address the issue. These riders include an accelerated benefits rider and a guaranteed acceptance insurability rider. An accelerated benefits rider will pay out some of the insurance policy’s death benefit if the insured is diagnosed with a terminal illness. And a guaranteed insurability rider ensures the policyholder can purchase additional life insurance even if they become uninsurable. Riders are affixed to traditional life insurance plans, which undergo medical questions and underwriting. Guaranteed acceptance policies do not.
Life insurance companies follow a meticulous method when issuing policies, and what goes up must come down. Having a life insurance policy with no health questions is superb; where it makes up for this superlative is the premiums and the death benefit. Premiums in a guaranteed acceptance insurance policy are more expensive than a conventional life insurance policy, and the policy comes with a lower and graded death benefit. A graded death benefit requires premiums to be paid for a period of time before the benefit amount can be paid.
Premiums in life insurance are subject to the underwriting process, which classifies applicants into three categories: standard risk, preferred risk, and substandard risk. A standard risk meets the insurer ‘s regulations as an acceptable risk (chance of loss), and you pay standard premium rates. A preferred risk means you are in excellent health, your habits and work environment are safe, and you have little or no family history of debilitating illness, resulting in lower premium rates. A substandard risk is a high risk to the insurer due to age, illness, or other factors, and premiums are higher. A guaranteed acceptance life insurance policy is most useful to people in this final classification.
Guaranteed acceptance life insurance is categorized as a final expense policy, which means the full death benefit is designed to cover end-of-life costs, such as medical bills and funeral expenses. Therefore, the amount of coverage is less than traditional whole life policies. The benefit is also a graded benefit, which means you are required to pay premiums for usually two to three years before a benefit will be paid. If you pass away before this time, your beneficiaries will usually receive the amount of the premiums you paid. This way, the insurance company protects itself from financial losses; if policyholders were to only pay a few months of premiums and receive a full death benefit, insurers would lose a lot of money.
Certain life insurance products can seem discriminatory toward people with medical conditions. That’s why guaranteed acceptance insurance policies are a necessary part of the life insurance market. They cover individuals who need them the most. These policies are best for older or high-risk individuals who do not qualify for traditional life insurance policies. Guaranteed acceptance insurance policies are considered “last resort” life insurance to ensure your loved ones do not bear the weight of financial burden due to your passing.
Guaranteed acceptance life insurance is a whole life insurance policy. This means coverage is permanent, and premiums are level throughout the life of the policy.
Though it is a type of whole life insurance policy, not all guaranteed acceptance life insurance policies accumulate cash value. Premiums are higher and are credited to the face amount of the death benefit. Policies are used to cover final expenses, such as burial costs, unpaid debt, medical bills, and mortgages. It is very rare to find a guaranteed acceptance term life insurance policy because term life policies are not permanent.
