Unfortunately, across the U.S. there is a rather large number of individuals who will not qualify for traditional life insurance. This even includes level benefit final expense insurance. Life insurance companies are not non-profits and they have underwriting guidelines that are set up in a manner that is most likely going to deliver profits to their bottom lines. Because of these guidelines, certain applicants are going to be denied coverage and when all else fails, they’ll be forced to buy guaranteed issue life insurance.
What Causes a Life Insurance Application to be Declined?
Since we know that there are two primary rating factors for traditional life insurance, age, and health, then certainly these two underwriting aspects are responsible for the majority of application declines.
Age of the Applicant
Most insurers will issue coverage for applicants up to age 70 or 80 but in most cases, the older applicants will have multiple health issues that prevent from qualifying for coverage. Additionally, the rates for life insurance when you’ve reached 70 or 80 are unaffordable because if you attempt to purchase term insurance, the companies rarely offer a face amount lower than $50,000.
An applicant’s health issues will generally be the main culprit for being denied traditional life insurance. Generally, one health issue may not disqualify an applicant from coverage, but in most cases, seniors will have several health issues they’re being treated for. The most common health problems that seniors must deal with and that are considered life-threatening by most insurance companies are:
- Heart Disease – Heart disease continues to be considered the leading killer of senior adults with 37% of men and 26% of women being diagnosed. In fact, almost a half a million seniors died as a result of heart disease in 2014.
- Cancer – Cancer, the Big C, continues to rank as the second leading cause of death for adults who are 65 or older with 28% of men and 21% of women living with cancer.
- Alzheimer’s – The CDC reports that Alzheimer’s caused over 92,000 deaths for people over the age of 65 in 2014. They claim that about 11% of people 65 and older are living with Alzheimer’s but assume that number is probably even higher since the disease is can be difficult to diagnose.
- Respiratory Issues – COPD is another leading cause of death in seniors. The CDC reported 124,693 COPD related deaths in 2014. Since COPD typically consists of chronic bronchitis or emphysema or both, patients usually have to deal with multiple bouts of influenza and pneumonia as well.
What’s the Alternative to Traditional Life Insurance?
When seniors who have aged out of the traditional life insurance marketplace or are dealing with multiple health issues that prevent them from purchasing traditional Final Expense Insurance, their only alternative will be “guaranteed issue” life insurance. This type of policy, although priced substantially higher than traditional Final Expense Insurance, has virtually no medical underwriting. In fact, most applications contain no health-related questions on the application.
What is Guaranteed Issue Life Insurance?
Guaranteed Issue Life insurance is the insurance of last resort for applicants who are too old or too sick to qualify for traditional life insurance. It is a great solution for final expense coverage because you can typically purchase a death benefit from $2,000 to $35,000 depending on your age and the insurer you are applying with.
These policies are marketed to seniors for the very reasons we’ve previously listed. In fact, with many companies, you can purchase a policy online and have coverage available the very next day (instant coverage is available for accidental death only).
There are, however, three very important caveats that an applicant must deal with when purchasing guaranteed issue life insurance:
- The Waiting Period – Insurance companies that offer guaranteed issue policies typically have a two or three-year waiting period before they will pay the full death benefit for death due to natural causes. Most, however, will return any premiums paid plus a percentage of that to the beneficiary. They will pay the full death benefit for accidental death from the first day of coverage.
- Low Face Amount – Guaranteed issue insurance policies are normally issued to cover final expenses such as funeral costs and unpaid nursing home and healthcare costs. The face amounts are generally only $2,000 to $35,000 depending on your age.
- Premiums – Since the insurance companies offering guaranteed issue life insurance are accepting an unknown health risk, the rates are substantially higher than traditional life insurance.
There is Good News!
Since guaranteed issue final expense policies are whole life policies, the policyholder can enjoy all of the whole life insurance guarantees:
- Guaranteed coverage for life as long as premiums are paid.
- Guaranteed level monthly premiums that cannot be changed by the insurer.
- Accumulation of cash value over time that can be accessed through loans or surrender.
If you happen to be a member of that large group of seniors that are unable to qualify for traditional life insurance – when all else fails – consider Guaranteed Issue Life Insurance.