'Last-chance' insurance: guaranteed-issue life
By Teri Cettina • Bankrate.com

Most people buy life insurance when they don't need it -- when they're young, healthy and able to plan ahead.

But how do you get insurance when you do need it -- when you're older, ill and in desperate need of a small nest egg to pay for your funeral or final estate needs?

The reality is that most insurance companies won't offer policies to folks with extremely short life expectancies. A limited type of insurance, known as impaired-risk insurance, is available to individuals who may have serious but not immediately life-threatening illnesses, such as diabetes or high blood pressure.

People who are unable to qualify even for impaired-risk insurance typically have one last option: guaranteed-issue life insurance. Guaranteed-issue life insurance is often referred to as burial insurance, since the benefits are often only enough to pay for modest end-of-life expenses.

No exams needed
Guaranteed-issue policies are whole-life insurance policies generally reserved for individuals 50 to 75 years of age. They don't require health exams and some companies will issue you a policy as soon as you write them a check, no questions asked.

Others may offer you coverage without a medical exam as long as you can answer "no" to a few questions, such as, "Have you been diagnosed with a terminal illness that would expect to cause your death within two years? Are you confined to a hospital, nursing home or medical facility? Do you have Acquired Immune Deficiency Syndrome (AIDS)? Have you tested positive for Human Immunodeficiency Virus (HIV)?"

But these policies can be quite expensive. While a healthy 50-year-old man could get a modest $25,000 term policy for around $200 per year, a guaranteed-issue whole life policy for the same face amount could cost more than $800 per year.

In addition, there is usually a waiting period before benefits can be paid and the benefits are usually quite small: $5,000 to $50,000. If you need more insurance, you must buy multiple policies.

Guaranteed-issue life is really last-chance insurance, says Mark Squairs, executive vice president and partner of Falcone Squairs & Marshall Financial Services, and a member of the Independent Insurance Agents & Brokers Association of New York. "This product is only for people who are otherwise uninsurable and didn't get insurance while they were still healthy."

Generally, guaranteed-issue life insurance only benefits folks with short life expectancies. "Because the product is so expensive, clients who expect to live 10 years or more would be better off investing their money in something other than this insurance," says Squairs.

Hard to find
John Watt, underwriting sales and marketing manager for CPS Insurance Services in Irvine, Calif., cautions that many agents don't even offer this very specialized type of insurance. "Your best bet is to go to an independent agent, someone who can help you find appropriate policies from a number of different insurance carriers and who can help you shop for the best premium price."

As with all insurance products, it's important to read a guaranteed-issue life insurance policy extremely carefully. Some policies offer what is known as a "graded benefit." This means that the policy doesn't pay out during a two- or three-year waiting period. If the insured individual dies during the waiting period, beneficiaries typically receive only the amount of premiums that have been paid, plus interest.

In addition, some graded-benefit policies may only cover "accidental death" during the waiting period. After two to five years, depending on the policy, the insurance will cover "death by any means."

A "simplified" version of this insurance doesn't require a waiting period before full benefits kick in. You're still not required to undergo a health exam, but the insurance company may ask additional health questions for underwriting purposes and may order exams such as HIV tests. Terms vary widely among insurance carriers and from state to state, so be sure to read the fine print.

Other options
Jeff Zander, owner of Zander Insurance in Nashville, Tenn., doesn't sell guaranteed-issue life insurance because of its strict limitations and limited benefits. However, he offers a few alternative tips for hard-to-insure individuals.

"Check any associations or unions you or your loved one might belong to. You can often qualify for group insurance that won't require health exams and won't be near as expensive as guaranteed-issue life," says Zander. "Nursing homes sometimes also offer what they call 'pre-burial programs.' This is virtually funeral insurance, and again may be much less expensive than what you can buy on the open market."

Teri Cettina is a freelance writer based in Oregon.

-- Posted: July 28, 2004