Life insurance isn't a subject with a lot of entertainment value. In fact, it's a pretty reliable conversation-stopper. That being said, providing some coverage to protect your partner and other loved ones is an important part of financial planning. For some, buying that insurance coverage can be problematic because of pre-existing health problems. It's possible to purchase life insurance without a medical exam and with no health questions, but these products have many limitations.
If your personal insurability is compromised by your health or hereditary factors, you might qualify for group coverage. Insurance companies can afford to insure high-risk individuals as part of a larger group, since the group will average out to a reasonable level of insurability. Employer group plans usually permit a set amount of guaranteed coverage to anyone, without a health questionnaire, provided they sign up within 60 days of becoming eligible. Plans available through alumni organizations, professional bodies and other groups will vary in their offerings, but some degree of guaranteed coverage is usually available. Death benefits are limited, but coverage is inexpensive and readily available.
Guaranteed-issue life insurance takes a different approach to the problem of insurability, offering individual policies with no questions asked. The insurance company protects itself from excessive claims by limiting the amount of insurance that can be purchased, and by placing a number of restrictions on the policy. For example, most specify that the insured must live for a specified number of years after purchasing the policy or the death benefit will not be paid. Instead, the premiums are returned to the insured person's family. Others increase the death benefit based on how long the policy has been in force.
Pros and Cons
These are high-risk policies for insurers, and their need to make a profit can be at odds with the client's need for coverage. The limited death benefits paid by most guaranteed-issue plans are usually only enough to defray the funeral costs, and their premiums are much higher than for other forms of insurance. In fact, the cost of premiums can quickly add up to more than the death benefit. For those who are unable to get insurance through other avenues, these policies are worth considering. However, younger buyers are usually better off pursuing other options.
Quick Issue or Easy Issue
One of those options is a type of policy usually referred to as "quick issue" or "easy issue." These policies are less restrictive than guaranteed-issue products, with better terms and higher death benefits. No medical examination is required, and the health questionnaire is typically brief and screens out only a handful of major risk factors. Premiums are typically much lower than for guaranteed-issue products, though still higher than conventional insurance.
Convenience is an important part of the sales pitch with guaranteed-issue or quick-issue policies. For young buyers, that convenience comes at a high cost. Better coverage is available at lower premiums for almost anyone, simply by going through the full underwriting procedure. Insurers will offer policies based on higher risk, either modifying the basic contract to exclude a specific cause of death or by simply increasing the premium as needed to compensate for the additional risk. If you're healthy now but wish to hedge your bets, a "guaranteed insurability" rider on a conventional policy makes it possible to buy additional coverage later, regardless of your health.
Fred Decker is a trained chef and certified food-safety trainer. Decker wrote for the Saint John, New Brunswick Telegraph-Journal, and has been published in Canada's Hospitality and Foodservice magazine. He's held positions selling computers, insurance and mutual funds, and was educated at Memorial University of Newfoundland and the Northern Alberta Institute of Technology.