'Last-chance' insurance: guaranteed-issue
Most people buy life insurance when they don't need
it -- when they're young, healthy and able to plan ahead.
But how do you get insurance when you do need it --
when you're older, ill and in desperate need of a small nest egg
to pay for your funeral or final estate needs?
The reality is that most insurance companies won't
offer policies to folks with extremely short life expectancies.
A limited type of insurance, known as impaired-risk
insurance, is available to individuals who may have serious
but not immediately life-threatening illnesses, such as diabetes
or high blood pressure.
People who are unable to qualify even for impaired-risk
insurance typically have one last option: guaranteed-issue life
insurance. Guaranteed-issue life insurance is often referred to
as burial insurance, since the benefits are often only enough to
pay for modest end-of-life expenses.
No exams needed
Guaranteed-issue policies are whole-life insurance policies generally
reserved for individuals 50 to 75 years of age. They don't require
health exams and some companies will issue you a policy as soon
as you write them a check, no questions asked.
Others may offer you coverage without a medical exam
as long as you can answer "no" to a few questions, such
as, "Have you been diagnosed with a terminal illness that would
expect to cause your death within two years? Are you confined to
a hospital, nursing home or medical facility? Do you have Acquired
Immune Deficiency Syndrome (AIDS)? Have you tested positive for
Human Immunodeficiency Virus (HIV)?"
But these policies can be quite expensive. While a
healthy 50-year-old man could get a modest $25,000 term policy for
around $200 per year, a guaranteed-issue whole life policy for the
same face amount could cost more than $800 per year.
In addition, there is usually a waiting period
before benefits can be paid and the benefits are usually quite small:
$5,000 to $50,000. If you need more insurance, you must buy multiple
Guaranteed-issue life is really last-chance insurance,
says Mark Squairs, executive vice president and partner of Falcone
Squairs & Marshall Financial Services, and a member of the Independent
Insurance Agents & Brokers Association of New York. "This
product is only for people who are otherwise uninsurable and didn't
get insurance while they were still healthy."
Generally, guaranteed-issue life insurance only benefits
folks with short life expectancies. "Because the product is
so expensive, clients who expect to live 10 years or more would
be better off investing their money in something other than this
insurance," says Squairs.
Hard to find
John Watt, underwriting sales and marketing manager
for CPS Insurance
Services in Irvine, Calif., cautions that many agents don't
even offer this very specialized type of insurance. "Your best
bet is to go to an independent agent, someone who can help you find
appropriate policies from a number of different insurance carriers
and who can help you shop for the best premium price."
As with all insurance products, it's important to
read a guaranteed-issue life insurance policy extremely carefully.
Some policies offer what is known as a "graded benefit."
This means that the policy doesn't pay out during a two- or three-year
waiting period. If the insured individual dies during the waiting
period, beneficiaries typically receive only the amount of premiums
that have been paid, plus interest.
In addition, some graded-benefit policies may only
cover "accidental death" during the waiting period. After
two to five years, depending on the policy, the insurance will cover
"death by any means."
A "simplified" version of this insurance
doesn't require a waiting period before full benefits kick in. You're
still not required to undergo a health exam, but the insurance company
may ask additional health questions for underwriting purposes and
may order exams such as HIV tests. Terms vary widely among insurance
carriers and from state to state, so be sure to read the fine print.
Jeff Zander, owner of Zander
Insurance in Nashville, Tenn., doesn't sell guaranteed-issue
life insurance because of its strict limitations and limited benefits.
However, he offers a few alternative tips for hard-to-insure individuals.
"Check any associations or unions you or your
loved one might belong to. You can often qualify for group insurance
that won't require health exams and won't be near as expensive as
guaranteed-issue life," says Zander. "Nursing homes sometimes
also offer what they call 'pre-burial programs.' This is virtually
funeral insurance, and again may be much less expensive than what
you can buy on the open market."
Teri Cettina is a freelance
writer based in Oregon.
-- Posted: July 28, 2004