What About Those ‘Guaranteed’ Life Insurance Ads?

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How many times have you seen a TV commercial or received a letter stating that you can’t be turned down for this life insurance?

“Guaranteed issue” or “guaranteed acceptance” whole life insurance doesn’t require a medical examination or answering medical history questions for approval. In many cases, you must only meet the age requirements, usually between 40 and 85. Premiums are fixed, and coverage doesn’t lapse except in cases of premium delinquency.

Because coverage cannot be denied, guaranteed issue policies are ideally suited for individuals with pre-existing conditions or those who have been declined coverage for other types of life insurance. The limited death benefit can cover some end-of-life expenses, such as funeral costs, medical bills or outstanding debts, ensuring that family members aren’t left with those financial burdens. However, these insurance policies have four significant limitations.

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1. 'Guaranteed' life insurance comes with higher premiums

While the ads tout low monthly premiums, the policies are actually expensive for the amount of coverage provided — mainly due to the absence of medical underwriting. The insurer assumes more risk and compensates by charging higher premiums.

2. Small death benefits

These policies typically offer minimal death benefits, often ranging between $2,000 and $25,000. This may be sufficient to cover funeral expenses but not significant financial obligations such as mortgage payments or income replacement.

3. Deferral of full death benefit

Beneficiaries usually don’t receive the full death benefit. Instead, they may only receive a return of premiums paid plus interest. Full death benefits typically vest after two or three years following the policy's effective date.

4. No cash value accumulation

With little or no accumulated cash value, you can’t borrow against the policy or build savings over time.

Other options to consider at lower premiums

“Simplified issue” life insurance policies may still require answering some questions about your medical history, but they do not require a comprehensive medical examination. “Guaranteed acceptance term” policies are also available. Be wary, however, of term life insurance policies that may automatically lapse at age 80 and have premiums that may increase in five-year bands.

Note: This item first appeared in Kiplinger Retirement Report, our popular monthly periodical that covers key concerns of affluent older Americans who are retired or preparing for retirement. Subscribe for retirement advice that’s right on the money.

Robert H. Yunich is a freelance writer in New York City. He has extensive knowledge about and expertise in investing and insurance. His career spanned over 30+ years in the financial services industry, including public accounting, banking, and as a financial adviser. He earned a Bachelor of Arts degree with a concentration in Economics from Columbia College (New York) and an MBA from Harvard Business School.