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 desirable – there are no medical tests required! But there are caveats to the policy that you should know about before you buy-in. Make sure you are reading the fine print on any guaranteed life insurance before you buy.
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 who buy 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 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 helpful to know that this type of life insurance may be temporary or permanent.
Sounds too good to be true? There are a few hidden catches under the fine print that policy buyers often fail to realise. But before we review fine-print surprises, let’s look at the types of people who 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 cannot get other types of life insurance. So, applicants generally include people with a terminal illness, severe 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. Still, it is generally 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 five times that of a comparable standard policy. In a 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 calculate risks and your life expectancy through different algorithms, some companies may find your profile ineligible for their standard insurance.
Most Policies Have a Minimum Term Before Payout
Minimum payout terms mean you may have to wait a stipulated period of two or three years before you can start receiving your payouts from the time your insurance policy goes live. During the waiting period, you receive minimal benefits. For instance, your beneficiary will receive the premiums paid or nothing if you die within the period.
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 protects insurers against immediate payouts in case of the death of a high-risk policyholder.
This stipulation is a problem. After all, 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 Denefits are Not Particularly High
For the premium you are paying and considering factors like your sex and age, you will find that the death benefits offered by guaranteed life policies are pretty low. For instance, a 50-year old woman looking to pay for funeral expenses (which may cost anything between $7000 and $10,000 today) 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 than they payout.
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 are not upfront about in their disclosures. 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 policies that some companies offer.