Did you know that you might be able to obtain life-insurance coverage on yourself or a loved one even if there is a history of serious medical conditions or a terminal illness?
What is “guaranteed-issue” life insurance?
This question is probably best answered by comparing and contrasting this sort of life-insurance coverage against what it is opposed to: namely, policies that are not guaranteed to be issued.
What does it mean for a policy to be “issued”?
For privately obtained life insurance – that is, for life insurance that you get on your own, apart from any “Group” benefits associated with your place of employment – there is a several-step process that has to be worked through.
Here are the usual steps for a policy that is not guaranteed to be issued.
- The application
In the application stage, an eligible (more on this, below), proposed insured expresses interest in obtaining coverage. Part of the regular application process is a “Declaration of Insurability,” which is essentially a battery of questions about your health history, driving record, and financial situation. The purpose of these questions is to help the insurance company determine your risk level.
- The underwriting
“Underwriters” are those people employed by the insurance company to assess the risk involved in assuming a liability. “Assuming a liability” just basically means becoming responsible for something. So, if the insurance company determines that your risk of dying is something they are willing to take responsibility for, then they will be willing to cover you – that is, to pay out a death benefit in the event of your death. For non-guaranteed coverage, the insurance company may accept or decline you as a risk.
- The offer
If the insurance company accepts you as a risk, then it will make you an offer or coverage. This offer will state what underwriting classification you have been assigned, and, by extension, it will disclose what premium the company is willing to accept in exchange for the promised death benefit.
- The issuance
If you decline the offer, then the policy will not go into effect, and any temporary or conditional agreement will cease. If you accept the offer, then the policy will be considered “issued” – that is, its coverage will go into effect. If you pay all the scheduled premiums on time, then you can expect to have your life covered according to the terms of the contract. If the policy is term coverage, then your coverage period will be specified. If the policy is some sort of permanent insurance (like whole life), then the coverage will be in place for the remainder of your life.[1]
For ‘non-guaranteed’ coverage, you may be declined.
Recall that with a regular life-insurance application, you’re going to disclose certain facts concerning your health. You’re going to concern you’re going to disclose or have to disclose certain things about your medical record. You’re going to have to allow the insurance company to access the driving record, certain financial statements, and things like this.
The level of scrutiny applied to you will be commensurate with the level of dollars of coverage requested. Underwriting standards vary.
You’ve got a certain subset of people who will apply for coverage. Of those people, a smaller subset will be approved. And their health and insurability make all the difference for a typical life-insurance policy.
For “regular” insurance, there’s no guarantee that you’re going to get accepted as a as a risk. They may view you as too risky in some way.
It doesn’t necessarily have to be because you’re unhealthy. It could be because you are reckless driver or because you are too risky financially (perhaps because you are financially irresponsible).
How does a ‘guaranteed-issue’ policy differ?
First and foremost, a “guaranteed-issue” policy has no medical underwriting.
You will not be declined due to poor health, for example. There are any of a number of conditions that might be relevant, here.
Seniors are often afflicted with Alzheimer’s Disease (or other forms of dementia or “End-Stage Senescence”), Amyotrophic Lateral Sclerosis (ALS), cancers of various sorts (including bladder, breast, colorectal, endometrial, kidney/renal, leukemia, lung, non-Hodgkin’s lymphoma, pancreatic, prostate, skin, and thyroid), cardia problems, Human Immunodeficiency Virus (HIV), liver disease, multiple sclerosis, pulmonary disease, strokes, and other miscellaneous conditions that sometimes fall under the umbrella term “Failure to Thrive.”
Adults and young adults may have to contend with cancers (such as those affecting the breasts, lungs, colorectal area, prostate, and skin).
Even children may suffer from serious conditions like Acquired Immune Deficiency Syndrome (AIDS), autism, cancers (including leukemia and lymphoma), cerebral palsy, congenital heart defects, cystic fibrosis, diabetes, epilepsy, sickle-cell anemia, and spina bifida. All of these may negatively affect insurability.
Others may be obese – potentially leading to cancer, diabetes, gallbladder conditions, heart disease, high blood pressure, sleep apnea, and stroke – or might be heavy tobacco users – the end result of which may be chronic-obstructive pulmonary disease (COPD), emphysema, or lung cancer.
There still are eligibility tests.
There are still some kinds of caveats and things along those lines.
For instance, a person who is 86 years old will not be approved even for a “guaranteed-issue” policy if the cutoff for eligible ages is 75, 80, or 85.
Additionally, there may also be restrictions in terms of association or group affiliation. For instance, the auto group AAA may have guaranteed-issued contracts, but you will need to join AAA in order to avail yourself of one of them.
Fraternal insurance groups, such as Baptist Life, The Woodmen, and the Knights of Columbus, require insured persons to hold membership in the respective society. This is partly because these groups enjoy tax-favored treatment as 501(c)(8) organizations.
So, check with an insurance agent or broker.
If you’re not a member of the fraternity, then you may be declined even for guaranteed issue policy. Or if you are outside of the age range, you will be declined even for guaranteed issue policy.
It’s not as if there are absolutely no restrictions whatever.
But, it you’re eligible, then there is no medical underwriting.
Pros to Guaranteed-Issue Policies
You may obtain life-insurance coverage even if you are chronically or terminally ill.
There is no medical underwriting. So, your health situation and history will not be strikes against your approvability.
Cons to Guaranteed-Issue Policies
Because there is no medical underwriting, the issuing company is going to assume that you pose a significant risk. The assumption is that if you were insurable otherwise, you would obtain coverage through the regular, underwriting process.
As a result, there may be – and doubtless will be – limitations in terms of the amount of death benefit that you get through a guaranteed-issue contract.
You’re not going to find a million-dollar guaranteed-issue policy, for example.
Typically, policies of this sort will be less than $25,000.
Many such policies fall somewhere between $5,000 and $10,000 worth of coverage.
The small dollar amounts are functions of the fact that the risk is assumed to be very high. The insurer limits its liability, not be declining the coverage, but by limiting the coverage amount.
Moreover, some of these policies are what are called “graded-death-benefit” policies. These policies generally have two different periods of time.
One period of time is kind of a probationary period. Many times, this period may be something like 1 to 5 years long. If the insured dies within the probationary window, the insurer’s liability is often limited to a return of the premium paid, perhaps plus some interest. In other words, if the policy is “graded” in terms of its benefit, the policy will not pay out the full death benefit on an insured who dies within the probationary time frame.
For instance, let’s say the probationary period is one year on a $10,000 contract that was issued January 1. And let’s say John dies on December 15 later that same year. Then John’s beneficiary will receive a refund for the premiums that were paid on John’s policy. Often – but not always – there is interest that exceeds that which would have been applied in a savings account or in a certificate of deposit.
But if John dies January 15 the following year, then the full $10,00 will pay out in this case.[2]
It’s important to realize that the, for the (family of the) person who dies during the probationary period, it’s certainly not the case that they would be paying into a policy and getting absolutely nothing. That’s not the case.
But, if the insured outlives the probationary period, the death benefit pays fully.
Think of it in terms of numbers.
Let’s say you’ve got a terminal cancer patient and a probation period of one year on a $10,000 policy. Let’s also suppose they’re paying $50 a month in premium. Over a year, they would have paid $600.
If the insured dies within a year, the beneficiary would receive $600 plus interest.
If the insured dies after that, the beneficiary receives the full $10,000.
Conclusion
For some people, guaranteed-issue policies may be the only non-group coverage they qualify for.
Is guaranteed-issue coverage available in the St. Louis area? Yes!
For a no-cost consultation or review, and to assess your eligibility, call (321) 948-0707. Or email me at stlcatholicinsurance@gmail.com
[1] Again, assuming that the policy is not allowed to lapse for premium non-payment and that you do not exercise certain prerogatives of ownership and surrender the policy, terminate the policy, or otherwise loan against its values (if applicable) in such a way as to undermine your coverage.
[2] Check the terms and conditions of the policy for actual details that apply to your personal situation.