Guaranteed Acceptance Life Insurance: What It Is and Why You Might Want to Consider It

One of the main fears of people who need life insurance is that the company will reject their application and they won’t be granted a policy. Many people believe that their health, lifestyle, or only their age, will make them ineligible for conventional life insurance. For these cases, guaranteed acceptance life insurance can be a great option. These are policies where the insurance company asks very few questions, but also charge much higher prices.

Here we discuss what guaranteed acceptance life insurance is, how it works, and when it might be a good fit for you.

Guaranteed Acceptance Life Insurance: What It Is and Why You Might Want to Consider It

Guaranteed Acceptance Life Insurance: Article Contents

What is Guaranteed Acceptance Life Insurance and How Does it Work?

If you are looking for a life insurance policy, you might be worried that you won’t be able to pass the underwriting process. During this process, which can sometimes be long and drawn out, the insurance company decides if you meet the requirements to be granted a policy. And it is not uncommon for the company to deny a person coverage. If you think this might be the case for you, you can consider another option: guaranteed acceptance life insurance. This type of insurance is not very well-known, but can be useful for people who have difficulties qualifying for traditional policies.

Guaranteed acceptance life insurance is a standard insurance plan, just without the underwriting process. The insurance company literally cannot deny you coverage, and will have to grant you the policy. In exchange, they will impose much higher premiums than those applicable to regular policies. Furthermore, the death benefit will also be much lower than is customary.

In general, insurance companies also offer gradual benefits (know as the two-year rule) . This means that, for example, if the insured dies during the first year or two of the policy’s term, no death benefit will be paid (although the companies usually refund premiums that have been paid if this occurs).

These precautions (higher premiums, lower coverage and gradual benefit) allow insurance companies to assume the high risk of insuring people who, in general, are already older or have preexisting health conditions.

All the other aspects of guaranteed acceptance life insurance work just like regular permanent life insurance or traditional whole life plans. This means that once you’ve signed the policy, it will remain in effect until your death, time at which the death benefit will be paid to the beneficiaries designated by the insured.

These permanent life insurance plans, in addition to the death benefit, also offer a savings account. The ability to save generates what is known as cash value. These are funds that can be used to increase your death benefit, and when they reach a certain amount, are paid to the policy-holder. This added value accumulates because the premiums paid for the insurance are level, meaning you always pay the same amount. During the first few years of the policy, they are disproportionate with regard to the risk assumed by the insurance company. But in the last years, since they remain level, they are lower than they should be in relationship to the risk assumed. This disproportionate amount in the first years builds up money that the insurance company invests and which generates this cash value.

With traditional permanent or whole life plans, the savings accounts are very conservative, meaning that they generate added value very slowly. In exchange, they are reliable and the profits are guaranteed. In addition, you can be sure that they death benefit will be paid. The only problem with guaranteed acceptance life insurance is that, as we’ve seen, the insurance company will only pay the death benefit if the insured dies after the policy has been in effect for two years.

Why You Might be Denied Life Insurance

As you can see, the guaranteed acceptance option is an interesting way to skip over a complicated underwriting process. If you are looking to buy insurance, you have likely realized that even requesting quotes can be challenging, and the insurance company asks for information about your age or medical conditions for informational purposes.

These difficulties increase during the underwriting process, which for permanent life insurance can take months. During this long process, the insurance company will ask you questions and require you provide them with certain information. They usually will ask you to undergo medical exams, and if you don’t meet their requirements, you will be denied coverage. And sometimes, even if they grant the insurance, they can withdraw it if they discover that the information you provided was false. That’s why it’s very important that the relationship with your insurance company is based on truthful information. One of the main mistakes people make when purchasing life insurance is not being fully transparent during the underwriting process.

When the insurance company requests you provide information and medical exams, they are looking for clues that will determine the level of risk they assume by insuring you. If this risk is excessive, they will deny you access to conventional policies.

The most frequent causes for this are:

  • Advanced age. People who are older have a shorter life expectancy, meaning that insurance companies will generally reject them. This is why the best solution is to purchase a policy when you are young. You can even take out policies for children or adolescents.

  • Tobacco or drug use. Insurance companies are generally hesitant to insure people with a long history of tobacco use. They also generally deny life insurance to people who have or had drug problems.

  • Preexisting medical conditions. If you have any health conditions that are life threatening, you might not be able to qualify for insurance. Frequent conditions that will disqualify you include diseases like cancer, diabetes, multiple sclerosis, or heart problems. Having a terminal illness will also disqualify you.

  • Mental illness. Patients with a mental illness are usually rejected during the underwriting process.

  • Dangerous habits. If you lead a risky lifestyle, engage in dangerous sports, or have a job that implies serious risks, you can also have problems qualifying for traditional life insurance.

  • Financial situation. Sometimes people are denied coverage because the insurance company is unsure of an applicant’s financial stability.

Despite this, you should know that qualifying for life insurance is actually easier than most people think. In fact, experts have found that many people in the United States don’t have life insurance (around 40% of consumers, according to LIMRA) because they erroneously think that they won’t be eligible.

The best thing you can do is to contact an insurance agent to find out for sure. You can also get an idea using online quoting tools. If, after going through these steps, you find that conventional insurance is inaccessible to you, then remember that you can look to guaranteed acceptance life insurance.

Pros and Cons of Guaranteed Acceptance Life Insurance

If you choose this type of policy, you should be very clear about its advantages and disadvantages. Though this is an option for getting insurance, it does have some serious drawbacks. The main advantages to guaranteed acceptance life insurance are:

  • No medical exams. Since there is no underwriting process, you don’t have to undergo heath evaluations and there is no reason to fear that you will be denied coverage.

  • No age limit. There is virtually no limit on age for these policies. Some companies even accept people up to the age of 80. This makes guaranteed acceptance life insurance a good option for people who are elderly.

  • Guaranteed renewal and no-cost cancellation. Guaranteed acceptance policies are very flexible because they also offer guaranteed renewal during the entire life of the policy-holder. And if you decide to cancel, there are no additional fees.

Some of the disadvantages include:

  • High cost. Since the insurance company assumes a large degree of risk and doesn’t impose any conditions, the premiums are very high. You will pay more per month for this type of policy than you would for temporary or term insurance and much more than you would pay for a permanent policy. This is why you should make sure that you are ineligible for conventional life insurance before purchasing guaranteed acceptance insurance. 

  • Low coverage. Insurance of this type includes very little coverage. In contrast to conventional policies, which can pay death benefits of up to a million dollars or more, it is rare for these types of policies to cover over $50,000. It’s important to keep this in mind, because sometimes it might only be enough to cover the insured’s funeral expenses [remember that you can also look into final expense insurance to pay for your funeral]. If you need more coverage, try to look for conventional policies that offer higher death benefits.

  • Two-year rule. Many policies include a clause that stipulates that the death benefit will not be paid until the policy has been effect for two years. Instead, it establishes a limited benefit for the first two years. This might mean, for example, that only half of the death benefit will be paid out, or not at all, if the insured passes away during this period.

As you can see, guaranteed acceptance life insurance might be a good option for some, but it does have serious limitations. You should be very sure that this is your only option prior to purchasing a policy. If this is the case, don’t hesitate to do so, as having limited insurance is better than not having life insurance at all.

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