People who wait too long to buy life insurance sometimes end up being driven to the only type of insurance available to them during a crisis: the guaranteed life insurance. On the face of it, it’s incredibly attractive – there are no medical tests required! But there are caveats to the policy that you should know about before you buy in.
What is Guaranteed Life Insurance?
I was reading the blog of an insurance comparison website (http://www.bestlifequote.com/blog/) which had an article of the things that people don’t know about the guaranteed life insurance policies. First of all, People that have bought guaranteed life insurance are bound to get payouts, regardless of any medical conditions they may have (as long as they pay their premiums in a timely way!).
There are no medical questionnaires or blood tests involved when you sign up for a guaranteed life insurance. All you have to do is fill up a form and you’re good to go. And insurance companies will approve your application, though some have a few restrictions. It’s also useful to know that this type of life insurance may be temporary or permanent, though term policies are most common.
Sounds too good to be true? There are a few hidden catches under the fine-print that policy buyers often fail to realize. But before we take a look at the hidden fine-print surprises, let’s take a look at the types of people that usually buy this insurance.
Who Buys Guaranteed Life Insurance?
Because there are no restrictions on applicants for guaranteed life insurance, it is the most common choice for people who are unable to get other types of life insurance. So, applicants generally include people with terminal illness, serious disabilities, life-threatening diseases, seniors and other high-risk conditions. Standard life insurance that is affordable may be hard to find under these circumstances, so guaranteed life insurance is the only option. It is also used by the elderly looking to be able to pay their burial expenses. The policy is not without age limits though. It is usually available for people between 45 and 85 years of age.
What You Should Know About the Fine Print of Guaranteed Life Insurance
Premiums are usually higher as compared to standard life insurance! Premium rates can vary for a guaranteed policy, but it is usually on the higher side because of the additional mortality risk charge claimed by the company in exchange for the medical test waiver. Sometimes the premiums can be as much as 5 times that of a comparable standard policy. In a desperate last-ditch attempt to get the protection you need, you may decide that it’s okay to pay that much.
But don’t be so sure that it’s the best option. It’s wiser to shop around a little more for standard insurance at other companies. You might find insurers willing to cover you. Because insurance companies actually calculate risks and your life expectancy through different algorithms, there may be some company that doesn’t find your profile ineligible for their standard insurance.
Most policies have a minimum term before payout.
This means that from the time your insurance policy goes live, you may have to wait a stipulated period of 2 or 3 years before you can start receiving your payouts. During the waiting period, you receive minimal benefits. For instance, if you die within the period, your beneficiary will either receive just the premiums paid out so far or nothing at all.
This graded payout applies to most such guaranteed life insurance policies. Only once the policy lapses will you receive the full death benefits. This fine print stricture is a way for the insurers to protect themselves against having to immediately pay out in case of the death of a high risk policy holder.
This stipulation is a problem, because you are most likely buying the policy because you are a high-risk candidate. But you don’t want to end up paying out with no gains for your beneficiaries. So it is wise to thoroughly evaluate your situation before you decide to sign the application form.
Death benefits are not particularly high
For the premium that you are paying and taking into consideration factors like your sex and age, you will find that the death benefits offered by guaranteed life policies are quite low. For instance, for a 50-year old woman looking to pay for funeral expenses (which may cost anything between $7000 and $10,000 today) and other bills may pay out $60 to $100 a month for a maximum benefit of only $15,000. And insurance companies usually have limits on the maximum death benefits that they pay out.
If you are about to sign away a few thousand dollars of your money in premiums, it is wise to go about it with the full knowledge of how much you will get back. Keep in mind these fine-print stipulations that insurance companies don’t usually tell you about. They should help you steer clear of bad choices that benefit no one but the insurers. You may also be spurred on to renew your search for more mainstream insurance policies that some companies may be willing to offer you.