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.
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.
“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.
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.
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.
