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What is the Difference Between Guaranteed Issue and Underwritten Life Insurance?
Life insurance is an essential financial tool that provides financial security to your loved ones in the event of your death. It is a contract between the policyholder and the insurance company, where the insurer promises to pay a designated beneficiary a sum of money (the “benefits”) upon the death of the insured person. However, not all life insurance policies are created equal. There are two main types of life insurance: guaranteed issue and underwritten. In this article, we will explore the differences between these two types of life insurance and help you understand which one may be the best fit for your needs.
What is Guaranteed Issue Life Insurance?
Guaranteed issue life insurance is a type of life insurance that is available to anyone, regardless of their health or medical history. This type of policy does not require a medical exam or any health questions to be answered. As long as you meet the age requirements, you are guaranteed to be approved for coverage.
Guaranteed issue life insurance is typically marketed towards individuals who have been denied coverage due to pre-existing health conditions or those who have difficulty obtaining traditional life insurance. It is also commonly used as a final expense or burial insurance policy, as it provides a small death benefit to cover funeral expenses.
What is Underwritten Life Insurance?
Underwritten life insurance, also known as traditional life insurance, is a type of policy that requires a medical exam and a detailed health questionnaire. The insurance company uses this information to assess the risk of insuring the individual and determine the premium rates. The healthier the individual, the lower the premium rates will be.
Underwritten life insurance policies offer higher coverage amounts and longer terms compared to guaranteed issue policies. They are also more customizable, allowing individuals to choose the type of coverage and riders that best suit their needs.
Key Differences Between Guaranteed Issue and Underwritten Life Insurance
- Medical Exam: As mentioned earlier, guaranteed issue life insurance does not require a medical exam, while underwritten policies do. This means that individuals with pre-existing health conditions or those who are in poor health may have a better chance of getting coverage with guaranteed issue policies.
- Cost: Guaranteed issue life insurance tends to be more expensive than underwritten policies. This is because the insurance company is taking on a higher risk by insuring individuals without any medical information.
- Coverage Amount: Guaranteed issue policies typically offer lower coverage amounts compared to underwritten policies. This is because the insurance company is limiting their risk by providing coverage to individuals without any medical information.
- Waiting Period: Guaranteed issue policies often have a waiting period before the full death benefit is paid out. This means that if the insured person passes away within the first few years of the policy, the beneficiary may only receive a partial payout or a return of premiums paid.
- Flexibility: Underwritten policies offer more flexibility in terms of coverage options and riders. This allows individuals to tailor their policy to their specific needs and budget.
Which One is Right for You?
Choosing between guaranteed issue and underwritten life insurance ultimately depends on your individual needs and circumstances. If you have been denied coverage in the past or have difficulty obtaining traditional life insurance, guaranteed issue may be the best option for you. However, if you are in good health and looking for higher coverage amounts and more customization options, underwritten life insurance may be a better fit.
It is important to carefully consider your options and consult with a financial advisor or insurance agent before making a decision. They can help you understand the different policies and coverage options available and guide you towards the best choice for your specific situation.
In summary, guaranteed issue and underwritten life insurance are two different types of policies that cater to different needs. Guaranteed issue is a good option for individuals who have been denied coverage in the past or have difficulty obtaining traditional life insurance. On the other hand, underwritten policies offer more flexibility and higher coverage amounts for those who are in good health. It is important to carefully consider your options and consult with a professional before making a decision to ensure that you have the right coverage to protect your loved ones in the future.
Question and Answer
Q: Can I switch from a guaranteed issue policy to an underwritten policy?
A: Yes, it is possible to switch from a guaranteed issue policy to an underwritten policy. However, you will likely have to go through the underwriting process and may be subject to higher premiums due to any changes in your health since the initial policy was taken out.