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Simplified Issue vs. Guaranteed Issue Life Insurance

Compare the pros and cons of simplified issue and guaranteed life insurance policies to determine which one is a better fit for your estate planning.

Buying life insurance can feel confusing. There are so many types available to choose from.

Sometimes, people want to get life insurance quickly.

People that aren’t in the best health may not qualify for traditional life insurance, either.

In these cases, two types of insurance may be options.

They include simplified issue life insurance and guaranteed issue life insurance.

If you’re debating between simplified issue vs. guaranteed issue life insurance, here’s what you may want to consider.

What is Simplified Issue Life Insurance?

Simplified issue life insurance can be issued as a whole life insurance policy or a term life insurance policy.

It depends on the insurer you buy it through.

No medical exam

Regardless of which option you choose, this type of insurance does not make you take the standard medical exam or medical testing regular life insurance requires.

Instead, you only have to answer a handful of medical questions about your health and potentially your family health history.

The insurance company may also use information in databases about your medical history, too.

Quick application decision

Based on this information, the insurer will make a relatively quick decision to approve or deny your application.

This is key because standard life insurance may take a couple of months to underwrite before it goes into effect.

While faster processing and no medical exam sounds great, it isn’t always advantageous.

More expensive

These policies are riskier for insurers to offer. Insurers don’t have as much information about you.

As such, the rates with these policies usually are higher.

Additionally, you may not be able to buy as much coverage with a simplified issue life insurance policy.

Most policies max out around $100,000 for this type of life insurance.

Payout format

Due to the unknowns, your death benefit may not pay out immediately with this life insurance.

Instead, the premiums may be returned if you die during the waiting period stated in your policy.

This helps life insurance companies offset the costs of people that die shortly after taking out a simplified issue life insurance policy.

If you’re in good health, you can likely get better rates and more coverage with traditional term or whole life insurance.

Unfortunately, it requires a medical exam and may take longer to issue.

Simplified Issue Life Insurance Pros & Cons

Pros Cons
  • Medical exam not required
  • No medical testing required
  • People in less than ideal health may still qualify
  • Coverage starts quickly
  • Offers more coverage than guaranteed issue life insurance
  • Likely to face higher rates due to no medical exam
  • Can’t get as high of a death benefit as traditional policies
  • Death benefit may not pay out in full immediately
  • Not guaranteed approval

Simplified issue life insurance is best for...

While simplified issue life insurance coverage isn’t perfect, it does have its place.

If you need life insurance fast, simplified issue life insurance may fit that need.

People in less than ideal health may not qualify for the best rates with a traditional term or whole life insurance policy.

They may get approved with acceptable rates with a simplified issue policy, though.

In these cases, the savings of getting a traditional life insurance policy may not be much.

Finally, people that absolutely can’t stand medical exams may find this option works best. They may have to pay higher rates but can avoid the exam altogether.

What is Guaranteed Issue Life Insurance?

Guaranteed issue life insurance is a small whole life insurance policy.

Guaranteed approval

No matter what your situation is, you’re guaranteed to get approved for this type of policy.

This policy may also be marketed as burial or final expenses life insurance. It’s the same type of insurance, though.

You don’t have to submit to a medical exam. You normally don’t have to answer health questions, either.

So how can these life insurance policies exist?

They sound great. That isn’t always the case, though.

These policies have significant limitations that make them less attractive.

Higher premiums

First, your premiums will be higher than other types of policies.

The life insurance company isn’t screening anyone out, so their costs will be higher.

Limited death benefit

Next, your death benefit amount will be severely limited.

In most cases, you can’t find policies for more than $25,000. Rare exceptions may exist with slightly higher death benefits.

Waiting period

Your death benefit won’t be paid immediately.

You have to outlive a waiting period before your beneficiaries will be entitled to the full death benefit.

This waiting period is typically two to three years. Life insurers have specified this period to discourage taking out policies in certain instances.

While someone with a terminal illness could buy a policy, they must outlive this period to have the death benefit paid to their beneficiaries.

If you die during the waiting period, most policies simply return the premiums paid. They may also pay out interest on those premiums, too.

Even so, this usually doesn’t provide much help from grieving families.

Guaranteed Issue Life Insurance Pros & Cons

Pros Cons
  • Guaranteed to get approved
  • Fast application process
  • No medical exam
  • No health questionnaires
  • Low death benefit amounts
  • Must outlive a waiting period
  • High premiums for the level of coverage provided

Guaranteed issue life insurance is best for...

If you can’t get any other type of life insurance, guaranteed approval life insurance may be one of your only options available.

This type of health insurance can also be useful for people that don’t want to answer invasive questions or take a medical exam.

It may be used for those that want a guaranteed amount of money set aside to pay for funeral costs, too.

Simplified Issue vs. Guaranteed Issue Life Insurance

If you’re shopping between these two types of life insurance, your decision should be pretty straightforward.

People who qualify for simplified issue life insurance are most likely better off choosing that option in most cases.

Then:

If you can’t get approved for simplified issue life insurance and need coverage, guaranteed issue life insurance may be your only choice.

Other Types of Life Insurance Worth Considering

You may have other life insurance options beyond simplified issue and guaranteed issue life insurance.

This may even be true if you don’t want to submit to a medical exam.

Work or group life insurance coverage

Your employer may offer group life insurance coverage as a benefit at work.

Often, these policies allow you to get life insurance as an employee benefit.

Your employer may cover the cost of the insurance for a certain amount of coverage.

Alternatively, you may have the premiums deducted from your paycheck.

Group life insurance normally lets you buy a certain amount of coverage without submitting to a medical exam. Often, this is explained as a certain multiple of your salary, such as three times.

If you want a coverage amount above that limit, you typically must submit to a medical exam.

Workplaces can offer these benefits because the majority of the people in the program are in good health, even if you are not.

The downside to these policies is they generally stop working once you leave your job.

If you get very ill, chances are you aren’t going to be able to continue working your job. This could cause you to lose coverage when you need it most.

Term life insurance coverage

If you’re relatively healthy, a term life insurance policy will likely be your best bet.

Some term life policies don’t require a medical exam.

Virtually all term life insurance policies require underwriting to look at your health history. Underwriters generally use information in databases to piece together a picture of your health.

The best part:

Term life insurance coverage is generally the cheapest life insurance option. It only lasts for a set period, called the term.

Policies usually have terms ranging from 10 to 30 years. The longer the term is, the longer you’re covered.

Once you have coverage with a term life insurance policy, you’re covered for the entire term. If you get diagnosed with cancer in the 5th year of your term, it would still pay out if you die.

For this reason, experts suggest for people to get term life insurance early in life when they don’t have health issues.

That way, they can lock in this cheap life insurance option at a relatively low cost.

Consult an Expert

Now that you know the differences between simplified issue vs. guaranteed issue life insurance, it’s time to take the next step.

Many people may be best suited by consulting with a fiduciary financial advisor. These professionals can help you determine which type of life insurance is best for your situation.

Fiduciary financial advisors normally charge a flat fee for their services. They don’t accept commissions as life insurance salespeople do.

This can help you feel better about their objectivity when they recommend a specific policy type.

Once you figure out which type of life insurance is best, get quotes from several providers. Then, pick the one that best fits your needs.