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Guaranteed Issue Life Insurance

October 31, 2013

 

Chris Garlasco, Owner & Managing Partner - Founders Insurance Group

Chris Garlasco, Owner & Managing Partner – Founders Insurance Group

Buying life insurance on a guaranteed issue basis is very appealing to those over the age of 50 since for many of us; issues such as high blood pressure, diabetes and other ailments often begin to take hold at that time in our lives. So, is it a worthwhile purchase and what do you need to know?

Most of these policies are sold via television ads targeted at potential customers that are in the 50 to 70 year age group with the promise of no “unneeded” medical questions and that everyone that applies will be offered a policy at a very low price, often as little at $10 or $20 per month. When it comes to buying guaranteed issue life insurance the old adage that if it sounds too good to be true, it probably is”.

If you follow my blog posts, I have often discussed the importance of having at least a small understanding how insurance works and why in the end, the math never lies. Insurance, simply put, is the pooling of a smaller amount of everyone’s money (Premiums), usually on a one year contracted basis, to lower each person’s financial risk in the event of a major loss. Customers do this with the understanding that they are buying this protection for a defined period of time and for many people, the loss will not happen. But for those that do have a loss, the amount paid out will generally be far more than the one year of contracted premium. What is important to note here is that in most, but not all, cases, the amount of protection and the price to purchase that protection is known up front. As an example, a customer may purchase an auto insurance policy for $300,000 of liability protection at a given cost. Another person may purchase $250,000 of life insurance and a premium is assigned to that person based on their age, gender and overall risk.

Risk Insurance CrosswordSo, the question is, “how is it that a life insurance company can offer a policy targeted to those that are often poor risks or may not be normally able to purchase insurance at all in the regular marketplace and do it for such a small premium?” If you listen closely to these ads for guaranteed coverage, you will notice that the announcer will say something similar to this; “Our insurance is guaranteed and you can’t be turned down for just $10 per unit per month and the price will never go up!” The key word in these advertisements is “Unit.” Generally, the coverage amount is based on your age and the amount of the “unit” is determined by that parameter.
While the price may never go up, the amount of each “unit” could possibly change as you get older. Just as an example, your $10 per month per unit, might buy at age 60 just $1,500 of life insurance or even less.

Since the designers of these plans know that they are targeted at a person with a high risk profile, the premium charge per $1,000 of coverage is almost always much more expensive than the premium charge per $1,000 of coverage in the normal life insurance market. These companies have simply found a way of making something that is extremely expensive sound extremely affordable!

Is this a bad thing? The answer believe it or not is not always. These life insurance companies do serve a purpose. If you have been turned down from other life insurers due to your health or advanced age, a guaranteed issue life insurance company may be your best option. The customer should just be aware of the value of each “unit” and that in order to keep the policy affordable, it should be used just for funeral expenses or leaving a small amount to a family member.

If you are over the age of 50 and in reasonably good health, shopping around will always be the better option than a guaranteed plan. The good news is that life insurance is more affordable today that it was twenty years ago.

Have a great day!

Chris Garlasco


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