 Personal Finance PowerPoint Presentation Guaranteed Issue, Life Insurance Prepare to get financially fit by practicing personal finance. Insurance is part of our long-term risk mitigation strategy where we follow the adage of measure twice, cut once, put in a formal process in place, looking something like set the goals, develop a plan to reach them, put the plan in action, review the results, repeat the process periodically. This information can be found at Investopedia Guaranteed Issue, Life Insurance, which you can find online. Take a look at the references, resources, continue your research from there. This by Amy Fontenille, updated February 1, 2021. In prior presentations, we've been taking a look at insurance in general, moving on to the life insurance. As we've been thinking about life insurance, we've got the two major categories being the term life insurance, the pure life insurance, the baseline kind of life insurance you would want to be comparing to whenever deviating from, and then the permanent life insurance, keeping that in context. We're now looking at what is guaranteed life, what is guaranteed issue life insurance. Guaranteed issue life insurance or guaranteed acceptance life insurance is a type of whole life insurance policy that does not require you to answer health questions, undergo a medical exam or allow an insurance company to review your medical and prescription records. So once again, we're talking about a whole life insurance as opposed to the term life insurance, which is kind of like the pure life insurance that we would always want to be comparing against. And then it's an insurance policy that does not require you to answer health questions, which can be beneficial in the event that you have kind of health conditions or health problems that might increase the risk to the insurance company, because obviously if you have health problems, the insurance company is going to say that you're more of a risk. The fact that you don't have that same kind of health question component would also of course mean the insurance company is taking on more risk and possibly result then in higher premiums in the event that you were like a healthy person for your age, for example. So or undergo medical exam. So again, the medical exam process is one which usually lowers the risk to the insurance company. That's why they do it. So they want to see if you're a healthy person for your age and sex so that they can properly, you know, figure out what the premiums would be and what the risk would be to do so or allow an insurance company to review your medical records and prescription drugs. And you may also see it referred to as quote, no questions life insurance end quote. So just give me the life insurance. But wait a second. Are you on your deathbed says the insurance company? Are you like dying? Do you smoke? Are your medical conditions bad? Just give me the insurance policy. Don't give me these questions. It may also be called quote, no questions final exam insurance as well. So sounds great, right? Yeah, it does. I don't need this insurance company poking into my medical business when I'm buying my insurance. What's the catch? Here it is. Guaranteed issue life insurance always has a waiting period. If you die during the waiting period, your beneficiaries will not receive the policies death benefit. So this is similar to what we have seen on things like the dental insurance and things like the insurance and those cases when you're in the medical industry, oftentimes you have that thing where the medical industry is saying we don't want to bar insurance for people that have quote, pre existing conditions and quote. But obviously insurance just in of its nature is something that you need to buy before you have the problem. You can't buy the car insurance after you get in an accident in order to cover you for the damage to the car that happened when you got in the accident. That's kind of like the point. So from the insurance company side of things, they want to know that the condition hasn't happened yet or what the likelihood is of it to happen so that they can do their calculations. So one way around that that we saw with the with the eye and the dental is they say, okay, we're going to put in a waiting period for the more expensive kind of things that could happen. So you can't just sit basically say I need this expensive thing to happen and I'm just going to buy insurance right before it happens and then the insurance has to pay out right after that because that would be kind of ridiculous on the insurance company side of things. So they say, well, you could buy the insurance, we're not going to put in this this big medical exam or check out your X-ray, your teeth or anything before, but we're going to make you wait like a year. So if you need a root canal or something before that, you're probably not going to be able to wait that long. So you got a similar kind of thing with the insurance will say, well, if they're on their death bed, we won't check it out, but we'll put you through the waiting period. And so if you're on your death bed, you're going to die before the insurance kicks in possibly would be kind of the rationale instead of looking for those preexisting kind of conditions with an actual exam. So with most policies, the waiting period is two years. So you got two years. So you're on your death bed, you're going to buy the insurance and they don't have to know that you're on your death bed possibly because you didn't, they didn't do a medical exam, but you got to hold on. You got to hold on for two years before you die. So with some it's three or possibly three. So this is not some kind of scam. In fact, if you die during the waiting period, the insurance company will repay to your beneficiaries all your insurance premiums plus interest usually at a rate of 10%. So your beneficiaries will still get something at that point. It will just be less than you'd like insurance companies put this waiting period in place because if they don't, everyone could apply for insurance on their death bed and pay a few hundred dollars to secure a $25,000 benefit for their family. So clearly, I mean, the way insurance company works, you have to, you know, they're trying to weigh the risk of you dying. If you're going to die tomorrow at like a 90% chance, that's what the doc says. Then the insurance company would not be who them to sell insurance to that individual. It's just kind of, so that's how it is. So no insurance company could stay in business this way. Guaranteed issue life insurance provides coverage to sick people who otherwise couldn't get it. So how guaranteed issue life insurance works. These policies get their name because the insurance company guarantees that they will issue a policy to you as long as you are within the allowed age range when you apply. In other words, they are guaranteeing that they will accept you as a policy holder. The typical age range to qualify is 50 to 80 years old. If you are outside of this age range, you may still be able to get a guaranteed issue policy with some insurance companies, but you will have fewer options given these age requirements and the lack of medical underwriting health questions. You can see why insurance companies market guaranteed issue policies to this age group. So once again, you don't have the medical underwriting, which are the health questions, for example, yet many people in this age group, even those with health problems have options besides guaranteed issue life insurance. This type of insurance is best for people who have no other options because of their health or who can't afford any other options because of their health, so which conditions will disqualify you from any other type of health insurance. So clearly, you know, if you were to say I try to get health insurance elsewhere, you're over a certain age limit, which would increase the premiums in and of itself. And if you have certain medical conditions, then that could be a problem for the insurance too. OK, so which conditions will disqualify you from any other type of health insurance? Not as many as you think. You have a terminal illness with a life expectancy of less than two years. You have had or need an organ or tissue transplant. You are on dialysis. You have Alzheimer's or dementia. You are in a nursing home or hospice. You have cancer and it's not some kind of skin cancer. There's a specific skin cancer. You have AIDS or HIV. You are in a wheelchair because of chronic illness or disease. If you've ever had an elderly parent or grandparent, you probably know that a person with one or multiple conditions such as these look like they have good days and bad days. Sometimes you think they are on the brink of death, but then they suddenly turn around and seem better than ever. Their physical health, mental health and physical abilities can seem really unstable. For most insurance companies, this level of instability represents too much risk, but some specialize in taking it on. So clearly if someone is in these types of conditions, then the insurance company would clearly be taking on more risk with regards to the insurance plans. And therefore you might have particular types of insurance companies that specialize in plans for those types of people so that they can kind of gear their risk assessment possibly more in alignment and therefore alter their premiums and so on to be in alignment using the same kind of methods and policies you would think for other types of life insurance in that if you have the big pool of people, you can determine what the life expectancy and so on is for the big numbers pool and then possibly get some appropriate premiums in such cases. So alternatives to guaranteed issue. Life insurance premiums always depend on your age, height, weight, health, gender. So we talked about these factors in the past. Clearly your age is going to have a significant impact on whether you're going to die prematurely or soon, your height and your weight as a combination will give them an idea if you're at an average kind of height, weight kind of calculation, your health clearly, and then your gender because apparently women tend to live longer. So might have an impact on the stats to and therefore your premium in states that allow gender based pricing the death benefit and the policy type. Insurance companies do not have different underwriting guidelines for different types of insurance says Rick Sabo a financial planner and insurance fraud expert. Whether you're buying term whole or universal the insurance company will put you in the same risk category. However, a different insurance company might put you in a different risk category. In other words, if you have a serious health condition such as diabetes, one company might offer you a better policy than another. Many applicants and applicants with health issues believe they could never qualify for a policy that requires medical underwriting, but that often isn't the case. So you might say, Hey, look, I've got this medical condition on insurance company would be crazy to give me life insurance given my medical condition, but you might find some insurance companies that specialize in people that have kind of medical conditions and that and they can still play the same kind of numbers game in order to give a policy that might be appropriate and that they could put you know they can do the pool of people and so on and think about what the risk would be and do it from that point knowing the conditions. So it depends on the health condition and the issuer. So people can get life insurance with underwriting, even if they have congestive heart failure and had a heart attack in the last 12 months or have had a stroke in the last 12 months among other health conditions. So you would think those would be pretty restrictive kind of factors, but possibly you can still find insurance companies that specialize in them. So for most people, it's worth applying for several policies that ask health questions to see if they can get a better rate or coverage and immediate coverage. Those who only want a small policy should look into guaranteed universal life, which can provide coverage to age 100 or even 121. So when I'm 121, that's when I'll buy my life insurance or final expense insurance. So guaranteed issue policies are useful, but only to applicants who don't qualify for policies with medical underwriting. So in other words, you might still even if you have medical conditions qualify with the underwriting, even though you might say, man, maybe I wouldn't qualify in that case. So you might want to check that out first. So guaranteed issue, what's the catch? Except for with waiting period guaranteed issue policies might sound too good to be true. Unhealthy people take out policies, pay their premiums and die in a few months or a few years. The insurance company has to either return their money or pay the death benefit. How can insurers even afford to offer these policies? Quote, the way life insurance companies make a bulk of their profit is not via the collection of premiums minus death benefits in quote, says insurance broker Anthony Martin, the CEO of Choice Mutual quote, they make most of their money via investments. Life insurance premiums are basically like interest free loans to the insurance company says Martin, the company invests that money. So it's kind of similar like how does my bank work? You know, I put money into the bank and then I just can take money out of the bank and so on. Well, usually they're not holding on to all that money in the bank. They're investing the money they're making the profit on the money. So similar when you pay your premiums, they might be saying they could try to figure out how much of the premiums they're going to need for the benefit payouts to make sure they can cover that and possibly they're making money on the investments. Then so in 2019, life insurance companies brought in 145.1 billion in premiums and 186.6 billion in net investment income, according to the insurance information Institute, a nonprofit communications organization supported by the insurance industry, insurance companies invest in stocks, mortgages, real estate, derivatives and other assets, quote, for guaranteed issue, they do lose money on clients who die in the first two years in quotes says Martin, it takes five years for the insurance company to break even on this type of insurance. And it's a win win for the insured in most cases, quote, the only time the insured would not come out ahead would be if they live long enough where their premiums exceed the policy he continues when guaranteed issue fell falls short. There are two scenarios in which a guaranteed issue policy might not pay off or be the best option. These are if the insured lives long enough that the premiums paid exceed the death benefit, or if the insured buys a guaranteed issue policy, when they could have a qualified for a policy that has medical underwriting. So in other words, if you're looking into that policy, and you're saying, I don't think I can, I don't think I can qualify for normal insurance, but possibly you could have given the fact that insurance companies might might be more expansive than what would qualify than you would originally think. And then of course, if you got the guaranteed policy and you lived longer than than and then you paid more in the premiums, which might not be a bad thing, then maybe then it might not be the best option then. So policies with medical underwriting have lower premiums for the death benefits they provide. So so they also offer immediate death benefits or a graded death benefit instead of having a waiting period. So what's the bottom line in all this? That's what I want. And that's what I want to know. Despite these factors guaranteed issue can be a valuable financial asset for people who can't otherwise get insurance. And those people aren't always seniors. They may be younger or middle age adults and poor health who want to leave money or for their families. So no to guaranteed issue life insurance policies are the same. So as with other insurance policies, you should you should shop around for the one that best fits your needs. That way, you're more likely to find the best life insurance policies currently on the market. So clearly, this is kind of a specialized area in the life insurance. So possibly even more so than in others and like term life insurance, which you would think would be fairly bit more straightforward with the pure life insurance, you'd want to be shopping around doing your homework on it. So look for affordable rates, something you know, you'll be able to keep up with even if you're financial situation changes because a lapse policy won't help anyone except the insurance company. Most importantly, don't assume you can't qualify for a policy that has a health questionnaire. You won't know until you apply.