We often get asked questions along the lines of “My aging parent is very ill and medical bills have drained his/her savings account, but I cannot afford to pay for the funeral if he/she should pass away. Can I buy life insurance on my parent?”
In this scenario, we do not advise purchasing “regular” fully underwritten life insurance. More often than not, term life insurance is going to be ideal for most people, but not in this scenario.
» Learn more: How to Help Your Parents Buy Life Insurance
Why we wouldn’t recommend term insurance in this case…
Term life insurance would typically not work in this case because the client would likely be uninsurable because of health issues and the client’s age may be outside the range a life insurance company would approve coverage for.
What we would recommend…
When we get this question, we usually tell inquirers that they have two options:
- Take the money you would have spent each month on term insurance and instead put it into a savings account so it can start accruing interest. You can then access these funds later when in need of money for your loved one’s final expenses.
- Purchase a guaranteed issue life insurance policy—also known as funeral insurance, burial insurance, final expense life insurance, guaranteed acceptance life insurance, or guaranteed whole life insurance.
Louise Lane’s mom, Debra, is 75 years old and has kidney disease. Debra applied for traditional life insurance a few years ago but was declined based on her age and health issues.
Louise is Debra’s only child and will be responsible for paying her final expenses—including the funeral costs and medical bills. Louise and Debra discuss financial plans and decide to apply for a guaranteed issue life insurance policy so Louise isn’t left with thousands of dollars of debt when Debra passes away.
Because there are no health questionnaires nor a medical exam, Debra can qualify instantly for coverage that will last the rest of her life.
What is a guaranteed issue life insurance policy?
Guaranteed issue life insurance is a type of life insurance that you cannot be denied coverage on, hence “guaranteed”. There are a few things you should know about this type of insurance.
- Guaranteed issue life insurance, funeral insurance, burial insurance, and final expense life insurance are all the same type of insurance policy.
- Guaranteed issue life insurance is typically known as “last resort” life insurance. It’s meant for those who may have been denied previously and/or are not in good health.
- Guaranteed issue life insurance policies are designed so that surviving loved ones can pay for the deceased’s final expenses, such as a funeral, burial, and medical bills.
- Guaranteed issue life insurance premiums will never increase.
- A guaranteed issue life insurance policy accumulates cash value.
- Guaranteed issue life insurance policies have significantly lower death benefit amounts compared to term or permanent policies.
- There is no medical exam or questionnaire required for guaranteed issue life insurance. The only factor that is really taken into consideration is the age of the insured. Because of this, guaranteed issue life insurance premiums are higher per thousand than most other types of life insurance.
- Benefits are limited within the first two years. This is called a Graded Death Benefit period. What this means is that if the insured individual dies within two years of buying the policy for any reason other than an accident, the beneficiaries typically only receive the total amount of what was paid in premiums. (This can vary depending on the carrier.)
What is the difference between regular life insurance and guaranteed issue life insurance (final expense life insurance)?
|Term Life Insurance||Guaranteed Issue Life Insurance (Final Expense Life Insurance)|
|What is it?||A life insurance policy designed to pay out a cash sum when you die that can be used by your beneficiaries to cover everyday living expenses.||A life insurance policy designed for people ages 50-80 who do not want to leave behind debt associated with their death, such as funeral expenses or medical bills.|
|Is coverage guaranteed?||No, your health and lifestyle risk factors will be taken into account along with your age.||Yes|
|Is a medical exam required?||Most of the time. For very healthy individuals, a medical exam may not be required.||No. No medical or health questions are asked.|
|When will the policy pay out?||If you die during your term length, the policy will pay your beneficiaries the death benefit.||As long as you pay your premiums, coverage lasts your entire life. If you die within the first two years by any means other than an accident, your beneficiaries only receive the paid premiums plus a little interest. If you die by any means after the first two years, your beneficiaries receive the full death benefit amount.|
|Will the premiums stay the same?||Yes||Yes|
|Will the amount of coverage stay the same?||Yes||Yes|
|What is the minimum age for applying?||With most life insurance companies, age 18 is the minimum age.||Age 50 is the minimum age for most guaranteed issue life insurance policies.|
|What is the maximum age for applying?||Age 65-80 depending on the life insurance company, but most coverage ends by age 90.||Age 80 for most guaranteed issue life insurance companies, but coverage is in place for your entire life.|
If the person who needs insurance is in relatively good health, a fully underwritten life insurance policy may be a better option because the cost of the policy will be less. However, is a great option for those with a desperate need.
See what you’d pay for life insurance
How much does guaranteed issue life insurance cost?
While you can get millions of dollars’ worth of term life insurance coverage, guaranteed issue life insurance coverage often caps at $15,000-50,000—depending on the company. Again, its design is based around simply helping surviving loved ones pay for final expenses.
Quotacy works with a select few top guaranteed issue life insurance providers. Take a look at the examples below to get an idea on what a guaranteed issue policy can cost.
John Smith is 55 years old and has been denied for traditional life insurance because of his Stage IV prostate cancer. He does not want to burden his children with his final expenses so he plans on purchasing guaranteed issue life insurance.
He’s automatically approved without having to undergo a medical exam or fill out any health forms. John obtains $15,000 in coverage and his premiums are $99.98 per month.
If John passes away within two years, the life insurance company will refund to his beneficiaries all premiums that had been paid plus a little interest. However, if John happens to die because of an accident unrelated to his health within those two years, his beneficiaries will receive the full $15,000 death benefit. After two years, his beneficiaries will receive the full death benefit regardless of how he dies.
Jane Doe takes care of her 79-year-old mother Sally. Sally does not have any life insurance and Jane is worried that she won’t have the funds to give her mother the funeral she deserves. Jane discusses the guaranteed issue policy with Sally and Sally agrees it’s a good idea to buy it.
A $12,000 policy is enough for Jane to ensure she can pay for a proper funeral and burial. Sally is approved for coverage and the policy will cost $192.18 per month.
Although this type of policy is easy to acquire because of its guaranteed acceptance, it offers less coverage and higher premiums than traditional life insurance, so explore all your options.
Recap of Guaranteed Issue Life Insurance:
- If you’re between 50 and 80 years old, you can be accepted for guaranteed issue coverage regardless of your health.
- There are no medical exams to complete or health questionnaires to fill out.
- Coverage lasts your entire lifetime.
- Cash value accumulates within the policy.
Remember, term life insurance quotes are free to run on Quotacy.com and there is no penalty for applying. It doesn’t hurt to apply for term life insurance, then opt for guaranteed issue if you end up being denied. The more options you have, the better decision you can make.
» Learn more: What Is Final Expense Life Insurance?
Watch the Guaranteed Issue Life Insurance Video
About the writer
Natasha Cornelius, CLU
Senior Editor and Licensed Life Insurance Expert
Natasha Cornelius, CLU, is a writer, editor, and life insurance researcher for Quotacy.com where her goal is to make life insurance more transparent and easier to understand. She has been in the life insurance industry since 2010 and has been writing about life insurance since 2014. Natasha earned her Chartered Life Underwriter designation in 2022. She is also co-host of Quotacy’s YouTube series. Connect with her on LinkedIn.