6 couple-in-kitchen-with-computer-and-coffee-smiling_BFVCU5RHj_thumb.jpg


It’s no secret that traditional life insurance, critical illness insurance and disability insurance offer amazing benefits to those who qualify for the policies. Through these plans, people can protect their families, their businesses, and their livelihoods against the unexpected occurring and disrupting their lives. Unfortunately, however, these policies often don’t extend to people who are facing serious health problems and who may need life insurance the most.

Several years ago, two alternative insurance products were offered to help cover people who may have fallen through the cracks when it comes to life insurance. These two new products fall into one of two insurance product categories: guaranteed issue and simplified issue.

Guaranteed Issue

Guaranteed issue life insurance is a small whole life insurance policy with no health qualifications. Typically, this type of policy is used for people who suffer from terminal illnesses, who may not have any other options.

Let’s dig a little deeper to see what benefits and drawbacks you should consider before purchasing a guaranteed issue life insurance policy.

Policy Benefits

As stated before, there are no medical qualifications for this type of policy, meaning that you do not need to answer any health questions, grant an insurance company access to your medical records, or undergo a medical exam to purchase the policy. This will sound particularly appealing if you have attempted to purchase a life insurance policy in the past but have been denied for a medical reason.

But here’s where it gets a bit complicated: There is a two-year or three-year waiting period before your beneficiaries can receive the death benefit. This is to prevent people from purchasing this policy when the policyholder’s death is more imminent. The business model could not survive if people paid a few premiums before dying, and then their beneficiaries received a large sum.

However, if the policyholder does pass on during that initial two-three year period, the insurance company will pay the policy’s beneficiaries the premiums along with approximately 10% interest.

Policy Drawbacks

Typically, these types of policies are fairly expensive. While it makes sense to purchase this policy if you are in poor health, it is usually the last option for people looking for life insurance. In order to ensure that this is your best option, make sure you don’t qualify for other life insurance or critical illness insurance policies, as some policies that require medical underwriting have lower premiums and offer immediate death benefits.

Simplified Issue

This type of insurance can quickly provide coverage and does not require applicants to undergo a medical exam. Instead of going to the doctor or providing medical records, you may have to answer just a few questions related to your health.

Policy Benefits

People need to be approved for a policy immediately to secure a loan or for a business situation. For whatever reason, if you find yourself needing insurance very quickly, this type of insurance could be for you.

Policy Drawbacks

These policies are typically not as flexible in terms of their coverage or other options compared to other life insurance options. They also carry higher premiums than other life insurance policies. There are also limitations on the maximum amount of coverage that you can purchase, and typically these policies have a maximum issue amount of $500,000.

Peace Of Mind

These two types of life insurance are great options for people who may have underlying health issues and may need a policy quickly. While these policies may be a bit more expensive and have less flexible options than traditional insurance, they are solid alternatives for some people.

If you feel like you may be a candidate for this type of policy, please reach out today. And as always, feel free to share this article with anyone who may find it of interest.


Copyright © 2021 FSB Content Marketing - All Rights Reserved

Michael Thorne profile photo
Michael Thorne
Financial Planner
Thorne Financial Planning