Not everyone is in perfect health when applying for life insurance. When you apply for traditional types of life insurance, you'll likely be asked a series of questions regarding your health, lifestyle and family history, and you may also be required to submit a medical exam report so your potential provider can understand the risks of insuring you.
However, in contrast to other types of life insurance — like whole life or term — guaranteed acceptance life insurance provides coverage regardless of the applicant's health history.
These permanent life insurance policies help ease the burden of final expenses by guaranteeing coverage without considering your health history or requiring you to undergo a physical exam. Learn more about how these policies work, when they're the right choice and how they compare to other types of life insurance policies.
What Is Life Insurance?
Life insurance is financial protection for your family in the event of a loss. When you pass away, life insurance pays out a death benefit to provide your family with a financial lifeline in the hopes of preventing severe financial hardship.
In a sense, life insurance of any type works to ensure that if something happens to you, your loved ones will be taken care of financially after your passing. A variety of factors can influence your life insurance needs and the best type of coverage for you.
When applying for life insurance, most companies require you to fill out a questionnaire declaring information about yourself. You'll be asked about both your family's health history and your own, any risky hobbies you may have, and even some non-medical information about your beneficiaries.
Depending on how you answer these questions, an insurer may require you to provide what is known as a full medical exam. A company may not accept your application for coverage if they feel it's too risky or expensive to insure you, in which case guaranteed acceptance life insurance might be a better option.
What Is Guaranteed Acceptance Life Insurance?
In contrast to other types of life insurance, guaranteed acceptance policies act as permanent life insurance policies that provide coverage regardless of your health history. The application process is simplified as you won't be required to have a full medical examination nor will you be asked a series of health-related questions.
Since insurance companies don't take into account your health history, however, the coverage provided by these policies is less than that of traditional forms of life insurance due to the higher risk borne by the insurer.
How Does Guaranteed Acceptance Life Insurance Work?
Guaranteed acceptance life insurance policies tend to be fairly easy to understand because the mechanics behind how they work can be found in the name. These policies provide guaranteed acceptance of applicants regardless of how old or healthy they may be.
This means neither a medical exam nor questions about your health history will impact whether or not you'll receive coverage. Implicitly, the policies guarantee acceptance to some level of coverage, and they also decrease the risk of insuring you by using what's known as a limited benefit or waiting period. If you pass away during the policy's waiting period, your beneficiaries won't be entitled to your policy's death benefit. You may find some waiting periods last between two and three years. As a way to prevent you from essentially paying for nothing, the life insurance company will repay any premiums you'd already paid, often plus interest.
Guaranteed acceptance policies are perfect for people who know they need protection but may be unable to get traditional coverage because they have poor health, are older or have other risk factors that cause providers to be wary of insuring them. If you receive a policy, remain current on your premiums (which never change as you age) and live beyond the waiting period, guaranteed acceptance insurance policies will pay out a death benefit to your beneficiaries.
Understandably, these policies come with higher costs than traditional whole life or term policies, meaning they carry higher relative costs while only offering lower amounts of coverage. As a result, many people often use guaranteed issue life insurance as a form of burial insurance to cover funeral expenses.
What Coverage Options Are Available?
When purchasing guaranteed acceptance life insurance, you have various options available for the types and amounts of coverage as well as the premiums you pay for it.
Because guaranteed acceptance policies are whole life policies, they last your entire lifetime. They also share the ability to build a cash value after your first year or two of coverage, allowing you to borrow against this at a guaranteed rate of interest.
Your cash value will build as you pay premiums on your policy. These payments won't increase each year and will remain the same so long as you keep your insurance policy active. Likewise, your coverage won't decrease as you grow older or if your health changes nor will it be canceled if you remain current on your premiums.
Who Is Guaranteed Acceptance Life Insurance Right For?
Guaranteed acceptance life insurance is a good choice for someone who needs life insurance but can't get coverage through a traditional insurance policy. These policies are designed for someone who may have serious health problems or who may be in need of near-term death benefits to cover the cost of their funeral and/or related death and estate settlement expenses.
It's best to use this type of policy for burial expenses as the policies offer little in terms of benefits or protection aside from guaranteeing acceptance and not being determined by health history.
Can You Have More than One Life Insurance Policy?
You can carry more than one insurance policy from different companies, though you'll need to disclose this to each insurer when applying. Providers want to understand your current coverage and verify that any previous applications you've submitted to other insurers were for reasonable amounts.
If you need additional coverage through a guaranteed acceptance policy on top of an existing life insurance policy, this could be a good option so long as you want the original policy's proceeds to go toward sustaining your dependents and the guaranteed acceptance policy to be put only toward burial expenses. This way, you can keep the policy payouts earmarked for different purposes, making it easier to prepare an accurate projection of your survivors' financial needs without jeopardizing their financial well-being.
If these policies sound like they might be a good fit for your needs, consider consulting with a financial professional who can help you decide which one will be best for your situation. A qualified advisor from a trusted company can guide you toward a solution tailored to your situation.