What is Guaranteed Issue Life Insurance?

Are you worried you won’t qualify for a traditional life insurance plan because of poor health or old age?

July 6, 2021

If so, guaranteed issue life insurance could be a good option for you. It lets you skip the medical test and invasive health questions, and approval is almost guaranteed.

Continue reading to learn more.

What is guaranteed issue life insurance?

Guaranteed issue life insurance is a kind of permanent life insurance. It is also referred to as no-medical exam life insurance because it doesn’t involve any medical underwriting. You don’t need to take a physical or answer health questions to qualify, and the coverage is guaranteed.

So, what’s the catch? The premiums are significantly higher than traditional life plans. Also, the death benefit is usually small, just enough to cover end-of-life expenses and small debts. Lastly, guaranteed issue policies have at least a 2-year waiting period before they release the payout.

All the same, this life insurance product is not without its merits. It helps solve specific problems for certain Canadian adults. If you’re one of those, guaranteed issue life insurance in Canada could be right for you.

Who is guaranteed issue life good for?

Not everyone who wants life insurance coverage gets it. Guaranteed issue plans can be a good option for people who want to put a life insurance policy in place but aren’t eligible for traditional life insurance plans. Perhaps they want to pay for end-of-life expenses, like funeral costs and medical bills. Or perhaps they want to leave a small financial gift to their family.  

A guaranteed issue policy could make sense for someone who:

  • Doesn’t qualify for traditional life insurance plans on account of their age or health
  • Wants a life insurance policy with a small payout
  • Is on a limited budget

Benefits and Drawbacks of Guaranteed Issue Life Insurance

Benefits ✔️

Guaranteed life insurance offers three main benefits:

  • No medical underwriting

You don’t have to take a medical test or answer questions about your health to get approval.

  • Guaranteed approval

Since there’s no medical underwriting, almost everybody who applies get approval. This makes it a good option for people who don’t qualify for any other life insurance policy. Even though the death benefit is small, some life insurance is better than none.

  • Fast approval

The average life insurance policy takes up to six weeks to receive approval. By contrast, with a guaranteed issue plan, you can get the policy within 2-3 days at most.

Drawbacks ❌

Here are the main drawbacks.

  • Higher premiums

When you sign-up for a traditional life policy, the life insurance company relies on your medical information — obtained through a medical examination and health questionnaire — to set premiums. But, as said earlier, guaranteed issue plans involve no medical underwriting. Carriers compensate for their lack of knowledge about you by charging higher premium rates.

  • Small coverage amounts

Guaranteed issue death benefit amounts available are typically very low, often not more than $25,000. For this reason, people tend to buy such a plan if they only want final expense insurance.

  • Graded death benefits

All guaranteed issue plans have a waiting period of at least 24 months. If you pass away during this period, the carrier won’t issue a death benefit. Instead, it will refund the premium amount you have already paid, plus the interest, to your beneficiary.

Alternatives to Guaranteed Issue Life Insurance

Simplified Issue Life Insurance

Happy Couple of Tourists

Simplified issue life insurance is also a kind of permanent life insurance that doesn’t require medication. However, unlike guaranteed issues, you will have to answer a few simple questions about your health and lifestyle. Also, the coverage is not guaranteed. The life insurance company can turn you down if it thinks you are too risky to insure.

If you don’t qualify for a traditional life insurance plan, consider giving the simplified issues a try first. It is less expensive than guaranteed issue life insurance and doesn’t always include a waiting period.

Term and Whole Life Insurance

Term life insurance is the simplest and often the cheapest form of life insurance. Its premise is simple and straightforward — you pay premiums every month and the insurer covers you for a set number of years.

If you die within the policy term, the carrier issues the payout to your beneficiaries. If you live beyond the selected term period, no benefit is payable. However, you can renew the term life insurance policy if you want to, usually without any medical exams.

Term life insurance plans don’t include a waiting period. While the insurer can investigate a death if it occurs within the first couple of years, they can’t deny the payout if there’s no misrepresentation on the application.  

Whole life insurance covers you for your entire life. It also includes a savings component — called cash value — that grows on a tax-deferred basis. Your beneficiaries receive the death benefit when you die, while the cash value is for you to use while you’re still alive. You can withdraw from or borrow against the cash value at any time and for any purpose.

Traditional whole life insurance policies are costlier than term life insurance. Expect to pay five to ten times more than what you would pay for a comparable term life insurance plan.

When Guaranteed Issue Life Insurance Falls Short

A guaranteed issue plan might not work to your advantage in the following scenarios:

  • You live long enough for premiums paid to exceed the death benefit amount.
  • You could have qualified for a traditional life insurance plan or a simplified issue policy.

Conclusion

Guaranteed issue is a unique life insurance product. It can be a good option for all those who don’t qualify for standard policies. This includes older Canadians as well as middle-aged adults in poor health. Since no two guaranteed issue plans are the same, you should speak to a life insurance expert to understand your options. At Dundas Life, we help people find how much life insurance coverage you'll need at the right price.

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