Life Insurance Surrender Value: What You Need To Know

Guaranteed issue life insurance is a type of permanent life insurance policy that does not require the applicant to undergo a medical examination or answer health-related questions. Instead, it guarantees acceptance as long as the applicant meets the age requirement, which is typically between 50 and 80 years. This type of insurance is designed for individuals with serious health conditions that would otherwise disqualify them from obtaining life insurance. While it offers a convenient and accessible option for those with limited life insurance choices, it also comes with certain drawbacks, such as high costs and low coverage amounts.

What is guaranteed issue life insurance?

Guaranteed issue life insurance, also known as guaranteed acceptance life insurance, is a type of whole life insurance policy that does not require applicants to undergo a medical examination or answer health-related questions. Instead, individuals are guaranteed to be approved for this type of policy, making it appealing to those who may have pre-existing health conditions or are anxious about the life insurance application process.

While convenient, guaranteed issue life insurance policies tend to have high costs and offer low coverage amounts, usually between $2,000 and $25,000. They also typically include a graded death benefit, meaning there is a waiting period before the full death benefit is issued. If the policyholder passes away within this period (usually between one and three years), the insurance company will refund the premiums paid to the beneficiary with interest, but will not issue the full death benefit unless the death was accidental.

The waiting period exists to prevent end-of-life candidates from cashing in on the death benefit too early, which would be financially unsustainable for insurance companies. Due to the higher risk taken on by insurers, guaranteed issue life insurance policies are more expensive than other types of coverage.

This type of insurance is often considered a "last resort" and is targeted towards seniors who wish to cover their final expenses, such as funeral and burial costs, or leave a small legacy for their families.

What is the surrender value of a life insurance policy?

The surrender value of a life insurance policy is the amount of money that a policyholder receives if they cancel their plan before it matures or they pass away. This is also known as the cash surrender value. It is the savings component of most permanent life insurance policies, such as whole life and universal life.

The cash surrender value is calculated as the total accumulated cash value, minus prior withdrawals, outstanding loans, and surrender charges. Surrender charges can be as high as 10% to 35% of the policy's cash value, but they decrease over time and usually end after 10 to 15 years. When you surrender a policy, you receive whatever you paid in premiums back tax-free. However, if you receive more than you paid in total premiums, you owe income tax on your earnings.

It is important to note that if you surrender your life insurance policy, your beneficiaries will no longer receive a death benefit when you pass away. Therefore, surrendering a policy should be carefully considered in the context of your long-term estate planning and goals.

Pros and cons of guaranteed issue life insurance

Guaranteed issue 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. It is also known as "no questions life insurance" or "no questions final expense insurance".

Pros:

• No medical exam required: This type of insurance is ideal for individuals with pre-existing conditions or older adults who may not be eligible for more traditional life insurance policies.
• Easy application process: There are no medical exams or extensive health questionnaires to fill out, making it quicker and easier to get approved for a policy.
• Coverage for pre-existing conditions: Guaranteed issue life insurance offers a way to secure some level of coverage if you have a pre-existing medical condition that makes it difficult or impossible to qualify for other types of life insurance.
• Coverage for older adults: Guaranteed issue life insurance provides an option for older adults who may not qualify for other types of coverage due to their age.
• No denials based on health: Because there are no medical questions or exams, you won't be denied coverage based on your health qualifications.

Cons:

• Small benefit amounts: The coverage amounts for guaranteed issue life insurance are typically low, often between $10,000 and $25,000.
• High cost: Guaranteed issue life insurance is more expensive than other types of coverage because insurers take on more risk by not requiring a medical exam or health questions.
• Graded death benefits: There is usually a waiting period of two to three years before the full death benefit is available. If the insured person passes away during this time, the beneficiaries may only receive a refund of the premiums paid plus interest, or a reduced benefit.
• Limited additional features: Guaranteed issue life insurance policies generally offer fewer additional options, such as investment components, than traditional life insurance policies.
• Not ideal for long-term planning: The lower coverage amounts and higher premiums make guaranteed issue life insurance more suitable for covering final expenses rather than long-term financial planning.

Who is eligible for guaranteed issue life insurance?

Guaranteed issue life insurance is a type of whole life insurance policy that does not require applicants to answer health questions, undergo a medical exam, or allow an insurance company to review their medical and prescription records. This type of insurance is typically marketed to people aged between 50 and 80, although some companies offer policies to those as young as 45 and as old as 85.

The typical eligibility criteria for guaranteed issue life insurance are as follows:

• Age: Most companies offer policies to individuals aged between 50 and 80. However, some insurers provide coverage to those as young as 45 or as old as 85.
• Health Status: Guaranteed issue life insurance is designed for individuals with serious health conditions that prevent them from obtaining traditional life insurance policies. These conditions may include terminal illness, the need for an organ or tissue transplant, dialysis, Alzheimer's, dementia, chronic illness, AIDS, or HIV.
• Budget: This type of insurance is more expensive relative to the coverage provided. Therefore, individuals seeking guaranteed issue life insurance should consider their budget and whether they can afford the premiums.

While guaranteed issue life insurance has broader eligibility criteria than traditional life insurance, it is important to note that it may not be available to individuals outside the specified age range or those without serious health issues. Additionally, the coverage amounts are typically lower, ranging from $2,000 to $25,000.

How does guaranteed issue life insurance work?

Guaranteed issue life insurance, also known as guaranteed acceptance life insurance, is a type of whole life insurance policy that does not require the applicant to answer health questions, undergo a medical exam, or allow an insurance company to review their medical and prescription records. This type of insurance is designed for people with serious health conditions that prevent them from buying policies that offer immediate death benefits. The typical age range to qualify is 50 to 80 years old, though this may vary depending on the insurance company.

Guaranteed issue life insurance policies always have a waiting period, usually two to three years. If the policyholder dies during this waiting period, their beneficiaries will not receive the policy's death benefit. Instead, the insurance company will repay the beneficiaries all the insurance premiums plus interest, typically at a rate of 10%. This waiting period is in place to prevent people from taking out insurance on their deathbed and securing a large benefit for their family at a low cost.

The death benefit of a guaranteed life policy is typically small, ranging from $2,000 to $25,000. The policies are also more expensive than traditional life insurance due to the higher risk taken on by the insurer. Additionally, the policy builds cash value over time, which can be accessed through a policy loan. However, if the loan is not repaid before the policyholder's death, the payout to the beneficiaries will be reduced by the amount owed.

While guaranteed issue life insurance has its advantages, such as providing coverage for those who may otherwise be unable to obtain it, there are also some disadvantages to consider. The high costs and low coverage amounts make it a less attractive option for those who have other choices. The waiting period and graded death benefits, which may result in beneficiaries receiving only a refund of premiums plus interest if the policyholder dies within this period (unless the death is accidental), are also important factors to keep in mind.

Frequently asked questions