There are several types of no exam life insurance, but two of the most popular are Guaranteed Issue and Graded Death Benefit. These types of no exam policies are very similar — so similar that people often use the terms interchangeably. However, the fact is that these are two different types of no exam life insurance policies. Here we’ll discuss what they are and how they differ from one another.
Guaranteed Issue, as the name implies, is a type of policy that approves anyone who applies. Hence, approval is Guaranteed. The only exception to this is if the applicant exceeds the age limit, which is 80 or 85, depending on the insurance carrier. Applying for Guaranteed Issue life insurance is extremely easy. All you need to do is fill out a short application that requests your name, age, gender, location, and contact information. NO health questions are asked and NO medical exam is required. If you’re under the age limit, you get approved.
The High Cost of Guaranteed Issue
While Guaranteed Issue is probably the most convenient type of life insurance to get, it’s also the most expensive. Here you can get a free quote. The reason for the high cost is that insurance companies take on a certain amount of risk when offering coverage. People who are healthy present the least risk statistically, because they are less likely to die early. People who have some health complications present a certain amount of risk, and insurers raise the monthly premiums to reflect that increased risk. People who have serious health complications might present such a high risk that the insurer either:
- Offers very high premiums
- Rejects their application
The way insurers determine the specific risk that an applicant poses is through the underwriting process. Underwriting is the process of comparing an applicant’s health, lifestyle, and financial details against millions of statistics to determine the statistical chance that they will die early. Smokers, for example, never get the lowest possible rates, since smoking statistically increases the risk of dying early. Other complications, like diabetes, heart disease, asthma, addictions, etc. are all examined by underwriters to determine the risk associated with each specific applicant. In short, the underwriting process allows insurers to present each applicant with accurate premiums.
With Guaranteed Issue no exam life insurance, there is no underwriting process. Insurers know very little about each applicant, and no health information is required. For all the insurer knows, the applicant may have a fatal illness and can die tomorrow. Therefore, the premiums are set very high to cover the unknown risk that the insurer assumes.
The Waiting Period
There is another way that insurers protect themselves from risk. In addition to high premiums, Guaranteed Issue policies usually come with a two-year waiting period. As mentioned above, an applicant can get approved for Guaranteed Issue and then die the next day. Is the insurance company expected to pay out the entire benefit?
The answer is no. The two-year waiting period means that if the policyholder dies within two years of purchasing the policy, the death benefit is not paid out. Rather, only the premiums are refunded, plus interest. The policyholder needs to live for at least two years after purchasing the policy in order for the beneficiaries to receive the death benefit.
One final way that insurers protect themselves against risk is by limiting the coverage to $25,000 for Guaranteed Issue policies.
Who is Guaranteed Issue Good For?
With all the strings attached to Guaranteed Issue, why would someone purchase it? Guaranteed Issue is designed for people who have serious medical conditions and can’t get any other kind of life insurance. For these people, Guaranteed Issue is the only way to ensure that their loved ones receive a small nest egg after they die.
Graded Death Benefit
Graded Death Benefit life insurance is so similar to Guaranteed Issue that people often confuse the two. While they are similar, there are some key differences.
Applications for Graded Death Benefit life insurance do include some health questions. These are referred to as knockout questions and typically center on HIV/AIDS, hospice/hospital stays, addictions, and terminal illnesses. If the applicant answers “no” to all of the questions, they get approved. If they answer “yes” to even one question, they do not qualify for this type of insurance.
Graded Death Benefit
As the name implies, the death benefit in this type of policy is graded (as opposed to the waiting period of Guaranteed Issue). While different insurers have different timelines, the main ones center on two or three years. That means, if an applicant dies within a year of purchase, only 25% of the death benefit will be paid out. In the second year, 50% will be paid out. In the third or fourth year, the entire death benefit will be paid out.
Graded Death Benefit life insurance offers coverage up to $50,000, which is a significant increase from Guaranteed Issue.
Lower Monthly Premiums
Since the application for Graded Death Benefit requires applicants to provide some health information, the insurer has more information about them. Therefore, monthly premiums are able to be slightly less than those of Guaranteed Issue.
Who is Graded Death Benefit Good For?
Graded Death Benefit no exam life insurance is good for people who have serious health conditions but can answer “no” to certain health questions.
Always Try for Graded Death Benefit First
Guaranteed Issue should always be considered a last resort when it comes to life insurance, since the premiums are significantly higher than all other types. Therefore, it’s worthwhile to try for Graded Death Benefit first. Different carriers often have slightly different questions, so if you can find one that allows you to answer “no” to all of them, you can be looking at significant savings over the course of your lifetime.