Guaranteed Acceptance Life Insurance – How Does it Work?

Have you wondered what Guaranteed Acceptance Life Insurance entails and how it might work for you? This article will give you the information you need and compare it with other policies.

When it comes to life insurance, there’s no one-size-fits-all solution. Some people are generally healthier than others which translates to better chances of cheaper premiums. There are those who get coverage while they’re young so they can lock down their rates at a lower price. 

And some have a few health issues, like being overweight or having a history of heart disease. These factors will surely get them a less favorable rating during their underwriting. But still, these people are likely to get approved, albeit at a higher premium.

But what about those who are in worse health conditions? People who have histories of serious illnesses and are having a hard time getting life insurance coverage? The individuals categorized as “high-risk” and thus end up getting disqualified for the typical term or whole life policy.

That’s where Guaranteed Acceptance Life Insurance comes in. In this article, we’ll take a closer look at what it’s all about, the pros and cons, and how it fares against other types of life insurance. Plus, get our recommendation on whether or not it makes sense for you.

What is Guaranteed Acceptance Life Insurance?

“No medical exam or health questions—guaranteed! You cannot be turned down because of your health!”, goes the ad for one popular insurance company.

Guaranteed Acceptance Life Insurance – How Does it Work?

And it’s true. At its core, Guaranteed Acceptance Life Insurance works exactly like how it reads. It guarantees you to receive coverage without the need to get a medical exam or answer health-related questions.

However, there’s a big trade-off for not having to undergo the typical screening process. And, that’s the small benefit payout and the relatively high premiums you need to pay for it.

Insurance companies basically earn when they receive (and invest) the money from the premiums that policyholders pay. In exchange, they will promise to pay a benefit in the event that the policyholder dies. 

Which means one thing: the healthier a person is (in general) the less risk that person has of dying. This is favorable to the insurance company, as there’s less probability of them having to pay your beneficiaries when you outlive your policy. In this case, you’re less of liability because you carry less risk. 

On the other side of the spectrum, people who have known illnesses or work in high-risk jobs and environments are considered very risky, as there’s a higher chance of them dying due to their health condition or type of job. 

In order to mitigate this risk, insurance companies created Guaranteed Life Insurance policies that are more expensive and feature smaller benefits. In exchange for guaranteeing a death benefit for the high-risk policyholder, the payout is significantly less and requires the person to pay a higher premium. 

To summarize what Guaranteed Acceptance Life Insurance entails:
  • Guaranteed Acceptance policies do not require individuals to answer health questions and take medical exams. There’s basically no health qualifications needed in order to qualify.
  • While it’s easy to get, this type of policy is much more expensive and features lower death benefits. This is because of the higher risk that insurance companies need to mitigate in order to guarantee a payout.
  • This type of policy works for people who find difficulty getting life insurance due to their health condition, age, or nature of the job. 

Guaranteed Acceptance Life Insurance Compared to Other Policies

Now that we know what Guaranteed Insurance (GI) is about, it’s time to compare it to other forms of life insurance to better help you assess its value.

Cost

Compared to term life insurance, you have to pay more and get less when you sign up for a guaranteed acceptance policy. Whole life is also expensive, but at least it can guarantee lifetime coverage at a bigger payout and cash value. 

Typical GI payouts range from $5,000 to $25,000, compared to even the cheapest term coverage ($50,000 to $100,000) is small. More common payouts for term and whole life policies range anywhere from $250,000 up to $1 million or more.

Purpose

The purpose of getting this type of insurance is very different versus other traditional policies. Whereas your typical term insurance in most cases works to act as income replacement in the event of the loss of a breadwinner. A GAL policy i for the purpose of covering final expenses so loved ones won’t have to shoulder them when the policyholder passes away.

Guaranteed Acceptance Life Insurance - How Does It Work?

Guaranteed Acceptance Life Insurance has its purpose, and that’s mainly to provide an option for applicants who fail to qualify for conventional policies but still want some form of coverage. The problem is, some elderly applicants (or those who have health issues) believe that GI is their only option. 

In reality, they can still qualify for traditional insurance–they just have to look a little harder and give more effort in applying and speak with a knowledgeable agent. Some insurance companies specialize in high-risk cases and can come up with a decent policy that can beat what GI has to offer in terms of price and benefits. 

Things to Consider Before Purchasing

Keep the following things in mind before getting a Guaranteed Insurance policy:

Ask yourself if getting Guaranteed Acceptance Life Insurance is indeed your only option

If the only reason why you are considering getting a GI policy is because you’ve been turned down a couple of times due to a heart condition (or some other related heart problems), then perhaps you would want to spend a bit more time and effort looking for insurers that specialize in those types of cases. 

Another good option is to hire an agent who works with an impaired risk specialist. It refers to a broker or advisor who is very familiar with these types of cases and knows which companies and policies will have the best offers. 

You can start by doing a search for independent agents in your area. From there, narrow down your prospects based on those who have plenty of experience working with high-risk cases. 

Guaranteed Acceptance Policies May Cost More

One primary reason to do your due diligence before considering a GI policy is its price to benefit ratio. If GI is purchased for the sole purpose of getting some kind of benefit (not for final expenses) for their loved ones, then the cost is hard to justify.

Say you’ve been paying for a GI policy for more than 5 years, a quick assessment of your total payments for the last 60 months will likely reveal you’ve paid a couple of thousand dollars for a policy that gets you coverage for $20,000. When this is the case, it will seem that saving the money instead (self-insure) makes better sense.

Especially when you realize that most GI policies feature a very small cash value (though some may return a portion of your total premiums) which means you may end up not getting anything when you outlive the policy. 

Graded death benefits limit early payouts

Graded death benefits means the policy will only pay out a portion of the actual benefit if the policyholder passes away within the first few years of coverage. Why do insurers do this? They implement graded benefits in order to reduce the financial risk on their end. 

For example, a policyholder who knows he is dying soon might purchase as much Guaranteed Acceptance policy as he can. To avoid them from taking advantage of the no-medical exam perk but with guaranteed pay-out, insurers implement graded death benefits. 

It acts as a safety measure to help prevent adverse selection. If you’re keen on getting a GI policy, make sure to check the schedule and know how the benefit is graded. 

What to Look for in a Guaranteed Acceptance Life Insurance Policy

Assuming you’ve done your due diligence and decided that this type of policy is exactly what you need, here are a few tips to help you get the most value out of your GAL policy.

  • Ability to lock down rates when the policy starts. There are plenty of insurance companies out there who charge a higher premium as the policyholder gets older. Try to avoid dealing with those companies and look for ones that offer the ability to lock down your rates.
  • Early payouts due to terminal illness – If the policyholder gets diagnosed with a terminal illness while the policy is in force, the insurance company should be able to release the benefit earlier (so the policyholder can use it for medical expenses.
  • Premiums that are required to be paid up to a certain age only but guarantees lifetime coverage. Some companies implement a rule that designates an age that once hit, the policyholder no longer has to pay for premiums. Plus, the policy will remain in effect for as long as the owner lives. 
  • Death benefit that increases if the cause of death is an accident. This is actually practiced by a lot of insurance companies who offer guaranteed acceptance. But just to be sure, best to check with your chosen provider if they have this feature.

Pros & Cons

Same with shopping for other types of life insurance, it’s always a good idea to compare a policy’s advantages and disadvantages to help you decide if it fits your needs.

Pros:

  • No medical exam or health questions required. You don’t have to undergo any tests for approval. In most cases, they will only require you to complete the necessary paperwork.
  • Approval is easier to get versus other insurance types. The reason? There’s essentially no medical underwriting involved which is typically the reason for the long approval periods.
  • For the elderly and those who have serious health conditions who have exhausted all options but still can’t get coverage
  • Since it’s basically a type of whole life insurance, it enjoys some of the same features. Such as the ability to lock in premium rates, death benefits that don’t decrease, the policy won’t expire. This is as long as you’re paying premiums   

Cons:

  • Low death benefit (less than $40,000 in most cases)
  • Premiums are more expensive than policies that require a medical exam
  • Graded benefit means your beneficiaries won’t get the full death benefit. That is, if you die within a few years of purchasing the policy (unless it was an accident)

Guaranteed Acceptance Life Insurance: Is it for you?

The people interested in guaranteed acceptance life insurance are usually the ones who are having a hard time getting approved for conventional coverage. Some of them will tell you that it’s basically their only choice for getting coverage.

But is it really? Does having certain illnesses or preexisting conditions automatically mean they’re limited to this type of policy? 

The answer to this question is no. Even if you’ve been denied of a regular policy several times, don’t lose hope. There are literally dozens of insurance companies out there who’ll be more than happy to offer you a more suitable policy. 

The Bottom Line

As we’ve mentioned before, life insurance is no one-size-fits-all solution. There are people who have diabetes, heart problems, and other types of conditions but were still successful in getting a regular term or whole life coverage. Perhaps hiring the services of an advisor who specializes in impaired risk insurance would take care of the problem..

And just like their policies, insurance companies are different from one another. Each one implements their own medical underwriting process, which means the results could also vary and yield different results. Some popular choices when it comes Guaranteed Issue policies are AIG, Gerber Life, Mutual of Omaha, AARP, and Vantis Life.

Even if you’re between the ages of 50-85 and the promise of no-exam life insurance may sound tempting, only go for it if it’s your last resort. And when you do, try to find a reputable company that’s financially stable and has a proven track record for paying claims. 

Lastly, try to seek help from an insurance broker. They can help you find the right deals as they have experience and insider knowledge.

Bear in mind that some of the links in this post are affiliate links and if you go through them to make a purchase I will earn a commission. Keep in mind that I like these companies and their products because of their quality and not because of the commission I receive from your purchases. The decision is yours, and whether or not you decide to buy something is completely up to you.