Reader’s Question:

I heard one can acquire a life insurance without going through all the medical questionnaires and examination. A friend of mine told me that getting a guaranteed issue life insurance is hassle-free, but can you tell me what’s the catch behind companies offering this kind of life insurance?

Harold

Aurora, CO

It may be reassuring to hear for some people that problems in their health conditions and history may not affect their ability to purchase a guaranteed issue life insurance. Applying for this kind of life insurance will provide you the ability to have insurance coverage without the hassle of going through a series of medical examinations to determine eligibility.

We know that normally, insurance companies will charge you a higher rate in life insurance premium when they see a greater risk of death in you. But how can they assess their risk if they do not know your medical history and health conditions? Insurance companies offering guaranteed issue life insurance can get around this in two ways: by offering the life insurance at a higher rate or by offering “graded benefits.”

Graded benefits mean that when the one insured dies at a certain period of time, the beneficiaries will receive only a portion of the benefits and not the full amount of the insurance policy. Many insurance companies, however, only gives the full benefits of the policy only if the insured dies a natural death after two years the policy is in effect. This means that when you purchase the insurance in 2008, and you die in 2009, your beneficiaries will only receive a portion of the insurance benefits.

In other cases, some insurance policies will still pay the full death benefits if you die in an accident even if in a contestable period of time. But usually, accidental death is the only reason for this. This means that guaranteed issue life insurance, although hassle-free to purchase and acquire, is not for everyone especially those who knows that they only have a few months to live. This type of life insurance may be your only option if you have a hard time looking for other insurance policies due to your medical conditions or health history and if you still expect to live for years.