The terms final expense and guaranteed issue no exam life insurance are often used by consumers interchangeably, but the fact is that these are two different types of life insurance policies.
Can Guaranteed Issue No Exam Life Insurance Cover Your Final Expenses?
Final expense policies are designed for one purpose only: To cover funeral and burial costs. Guaranteed issue policies, on the other hand, can be used for any number of purposes. In many cases, the beneficiaries use the payout to cover funeral expenses, but this does not necessarily need to be the case.
Final Expense Life Insurance
Final expense life insurance is a type of whole insurance policy, which means there is no expiration date. (Term policies, on the other hand, are sold in increments of 5 years – 5, 10, 15, 20, etc. – and when the term expires, so does the coverage.)
People who have been turned down for a traditional life insurance policy often turn to a final expense policy as a way to make sure that their loved ones don’t get saddled with costly funeral expenses.
There are two types of final expense no exam policies: simplified issue and guaranteed issue. Both are no exam policies, which means applicants do not need to undergo a medical exam as part of the application process. The main difference between simplified issue and guaranteed issue is in the amount of health information each requires.
Simplified issue requires applicants to answer a few health-related questions, while guaranteed issue doesn’t ask any questions and guaranteed coverage to almost everyone.
Another difference is in the cost. Since simplified issue insurers do gather some information about you, they are able to better assess their risk. The premiums reflect that. Guaranteed issue insurers offer blanket coverage and have no way of assessing their risk, which means that premiums are higher.
Guaranteed Issue Life Insurance
The Guaranteed issue is often defined as a type of no exam insurance or final expense policy, but it doesn’t necessarily have to cover funeral costs. Coverage can go up to $50,000, which is much more than the average funeral that costs somewhere between $7000-$12,000.
Guaranteed issue is almost always more expensive than simplified issue, or any other type of life insurance policy, for that matter. People usually turn to it as a last resort in order to leave something behind to their loved ones. As a whole life insurance policy, there is no expiration date.
Guaranteed issue policies can sometimes come with a waiting period and/or graded death benefit, two features that aren’t ideal for final expense insurance. A waiting period means that if the policyholder dies within two years of policy purchase, the full death benefit is not paid out. In some cases, only the premiums are refunded.
A graded death benefit is the same idea, paying out only a percentage of the full death benefit if the policyholder dies within two years of purchase.
People who want to purchase guaranteed issue might be willing to take the risk with such a policy, but those conditions would defeat the purpose of anyone who needs the policy to cover funeral costs.
Final Expense vs. Term Life Insurance
Term life insurance is the most popular type of life insurance in the United States due to its affordability. However, final expense life insurance is typically easier to qualify for than traditional term insurance, which requires a medical exam.
People in poor health who apply for term policies can get slapped with very high premiums, or they can be denied altogether. These people may actually get better rates with final expense insurance than with a traditional term policy. Plus, final expense insurance has no expiration date, whereas term does.
Final expense also offers lower coverage amounts than term. When it comes to life insurance, the higher your coverage, the higher your premiums. Even though guaranteed issue is an expensive type of final expense insurance, it may be worthwhile if you’re coverage is lower.
Benefits of Final Expense Life Insurance
- Smaller coverage amounts.
- No expiration date.
- Easier to qualify for.
- Can skip the medical exam.
- Instant or quick approval.
Cons of Final Expense Life Insurance
- Limited to seniors.
- Can be more expensive.
Benefits of Term Life Insurance
- More affordable.
- Available to all ages.
- Coverage can go until $1 million, even more in some cases.
Cons of Term Life Insurance
- Coverage starts at $25,000, which may be too much for final expenses.
- Requires a medical exam.
- Approval can take 4-6 weeks.
Anyone considering which type of policy to get would do best to speak to an unbiased insurance advisor. There you can find out what the financially smarter choice is for your particular situation, and at the same time, make sure your loved ones will be taken care of when you pass.
