Guaranteed acceptance life insurance is a very attractive policy for people in a specific age group and situation. Those people are between 50 and 80- 85, perhaps with some type of serious or semi serious health condition. It is very attractive because by it's nature, you can buy this type of policy without a physical and it as it's name says, it is a guaranteed issue' policy.
While a guaranteed acceptance life policy might seem a good option if you are older, you might to might want to look at exactly why you want to buy it. Do you want to make sure your estate can cover your burial expenses? There are a number of ways of meeting that need and your job is to assess whether this type of policy is the best way to go about it.
Here's the catch, it costs more
A guaranteed acceptance life policy sounds so very attractive because when companies trumpet its benefits on TV, it sounds like you pay only very low premiums. The supposed advantages of this type of policy don't stop there as it has no medical exam or health questions. What is not disclosed is if you pay very low premiums, your policy has a very low face value perhaps no more than approximately $1,700 and that only if you are a relatively spry 50 year old woman.
It's true that no business is going to give it's products away for free because it couldn't survive as a business if it did. With a guaranteed acceptance life policy if you pay a low premium you get a very low benefit. If you want a higher benefit, perhaps in order to cover burial expenses of $7-10,000, then you will have to pay a much higher premium.
Insurers have to protect themselves against those people who, knowing they are dying, buy up life insurance. The way insurers do that with guaranteed acceptance life insurance is to limit the financial risk they are taking. They charge high premiums and limit the death benefit within the first 2 years of the policy.
How much will your heirs receive as a benefit?
Most people are familiar with how life insurance works. You pay a premium and at the time of your death your heirs receive a death benefit, usually at least equaling the value of the premiums you have paid and often for a higher amount. With a guaranteed acceptance life policy this is still true to some extent but there may not be a direct equation between the premiums you pay and the cash value of the policy when you die. This is especially true if you die during the first 2 years of this type of policy when only a specified limited benefit will normally apply.
In effect with a guaranteed acceptance life policy you pay a price for not having to have a medical exam. The price can be very high if you hold the policy over a fairly long period say10-15 years. Not only are you paying a high premium to compensate the insurance company for the riskier nature of this policy but your heirs may not receive the full value of those premiums. This is very much the type of policy where it is useful to check all the fine print in the contract and to ensure you receive a face to face confirmation from the insurer on the exact size of the death benefit your heirs will receive.
Financial advisers are not fans of guaranteed acceptance life policies. They point out that there is a small window during which policy owners of about 70 years and up will actually receive back the full value of the premiums they have paid. That window will be about 6 years...
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