Guaranteed acceptance life insurance is an option that is attractive to people who have been turned down for a standard policy. Before you choose a policy, you should consider the potential advantages and disadvantages.
Guaranteed Acceptance Life Insurance: What to Consider
There are several factors that you should consider when looking for any type of life insurance policy.
Advantages of a Guaranteed Acceptance Policy
The main advantage of a guaranteed acceptance life insurance policy is that you can't be turned down. Other types of insurance may require an applicant to have a medical examination and/or answer some health questions as part of the application process. The company is trying to get an idea of the level of risk presented by the applicant so it can make a decision about whether to extend coverage and at what cost.
With a guaranteed acceptance policy, the process is much simpler. Anyone who submits an application form and pays the premium is covered. As long as the premium payments are made as agreed, the coverage continues and the company does not have the right to cancel the policy.
Disadvantages to a Guaranteed Acceptance Policy
One disadvantage to buying a guaranteed acceptance life insurance policy is that premiums tend to be higher than for other types of policies. Instead of basing a decision about whether to offer coverage based on the applicant's age, family history and current health, the company must rely on the individual's age and gender to determine premium pricing. The insurance company charges higher rates for coverage since it accepts everyone who applies. An insurer who does so is taking on a higher level of risk that may result in paying out more in claims than a company that has applicants go through the standard underwriting process. As a result, its customers pay more for their life insurance.
Limited levels of benefits are another disadvantage of a guaranteed acceptance insurance plan. Many of them only offer enough coverage to pay for funeral expenses. While a relatively small policy offering $15,000-$20,000 can help to defray these costs, it may not be enough to replace the insured's income for a number of years. A person who is looking for insurance coverage to pay off debts or a mortgage, or provide funds for a college fund for his or her children may not be able to get enough coverage to meet these needs.
Read the Policy Provisions Carefully
When you buy life insurance, you need to understand the policy terms and conditions. Some policies offer limited benefits during the first couple of years that the policy is in force. In the case of a guaranteed acceptance life insurance policy, if the insured dies within the first two or three years, the beneficiary may only receive a refund of the premiums paid, plus a certain amount for interest.
This practice of "graded benefits" was put in place in an attempt to avoid insurance fraud. The insurance company invests the money it collects in premiums to pay its expenses and to provide the means to pay out on claims. Guaranteed issue insurance companies want to avoid having people who are close to death buying policies when they haven't paid into the plan for at least a few years.
Some plans will pay out the full death benefit if a policyholder dies during the first few years if the death was accidental. It's a good idea to ask whether this is the case before you make the commitment to buy the policy. You will also need to find out exactly what the company considers "accidental death."
Total Premiums Paid
Another item to consider before you buy a guaranteed acceptance life insurance policy is the total cost of the premiums you will be paying into the plan. Some policyholders pay out more in premiums than their beneficiaries receive in benefits when they die.
Taking the time to consider this type of plan carefully will help you to decide whether it is the right choice for you.