The advisor has come up with a Guaranteed issue life insurance offer. I'm not sure of it's advantages and disadvantages.
Total Comments: 13
Posted: Mon May 03, 2010 09:27 pm Post Subject:
The advantage is you don't have to prove insurability. The disadvantage (assuming you are not a standard risk) is the cost will be higher than if you were able to qualify as a standard risk and/or the insurance face amount may be less they would offer to you than as a standard risk.
On the other hand, the insurer may simply be interested in the cash flow of the premium, and give you a standard rate on a high value, high premium policy.
Not really much in the way of downside to a GI policy unless the insurer is about to be liquidated.
Posted: Tue May 04, 2010 07:30 am Post Subject:
A guaranteed issue life policy doesn't raise questions. But remember, that it's quite different than those policies which don't need any medical exam. You don't need to answer any question regarding your eligibility or health.
Posted: Wed May 05, 2010 08:45 am Post Subject:
You won't be able to have this kind of insurance beyond a certain coverage limit. The premiums are also higher in general. This happens due to the fact that the guaranteed issue policies are meant for the senior citizens and for people who bear more of medical risks.
Posted: Wed May 05, 2010 02:43 pm Post Subject:
Not entirely true. Guaranteed issue policies in 6 and 7 figure death benefit amounts are routinely issued to major corporations to cover executives and to backstop non-qualified benefit plans such as deferred compensation or salary continuation plans. But the premiums are higher than most standard risk policies of the same amount.
There is still a minimum of underwriting performed, but it is designed to make sure that a policy is not being issued to someone who has a terminal condition such as cancer. That underwriting is usually done by a third party other than the corporation or the insurer.
In these cases, the insurer is counting on having the cash flow more than the effect of paying a claim.
Posted: Thu May 06, 2010 02:28 am Post Subject:
Not entirely true. Guaranteed issue policies in 6 and 7 figure death benefit amounts are routinely issued to major corporations to cover executives and to backstop non-qualified benefit plans such as deferred compensation or salary continuation plans. But the premiums are higher than most standard risk policies of the same amount.
While I agree that his does happen. I think the other posts were more directed at single consumer driven purchases. I haven't run across a company that allows for a seven figure death benefit amount to be issued at guarantee issue.
We left out another common trait of guarantee issue policies. They tend to be return of premium products for the first couple of years, and only after that period, will a death benefit be paid.
Posted: Thu May 06, 2010 04:40 am Post Subject:
When I was with one of the major agencies specializing in Executive Benefit Plan administration a few years ago, we had several carriers that routinely made available $1 million to $5 million GI UL/VUL policies for some of our larger clients.
Of course, we had developed a long-standing relationship with the insurers, who already had several hundred million of face amount in force through us covering a number of insureds and plans, so we could exert influence that few agencies, let alone individual agents, might ever dream of. If Company A turned us down, we had Companies B, C, D or more waiting for our calls.
The carriers included names such as Pacific Life, Mass Mutual, NY Life, Connecticut General, and Manulife. In some instances, there were previously medically-underwritten policies on the same insureds in force.
Some of the policies were also split-dollar, and all premiums were being paid on an annual basis -- which often meant $20,000-$30,000 or more per policy. In some of our non-qual plans, our corporate clients were paying annual premiums of $20-$30 million on blocks of several hundred policies to cover deferred comp and salary continuation arrangements.
Posted: Fri May 07, 2010 11:15 am Post Subject:
Don't you guys think that these guaranteed life policies are a bit risky?
If we'd continue paying for such high coverage cost and in return if we have a lower coverage amount, then don't you think our beneficiaries would be the losers in the end?
Posted: Fri May 07, 2010 09:04 pm Post Subject:
To state the obvious, if there is a minimum of underwriting, it is not guaranteed issue. It may be simplified issue, but it isn't guaranteed issue.
Juanita, the beneficiaries aren't the losers. The people who buy guaranteed issue policies on themselves are people who for one reason or another can't get underwritten policies.
When these are done on a group basis, it's almost always done with the company paying the premium and everyone in the class participating. What happens is because the insurance company knows that they'll be a certain number of lives and there won't be cherry picking (healthy and unhealthy people get coverage), the insurance company can price it appropriately. The coverage is more expensive than a healthy person would typically pay and cheaper than what an unhealthy person would pay.
Posted: Fri May 07, 2010 10:06 pm Post Subject:
Don't you guys think that these guaranteed life policies are a bit risky?
The risk is all to the insurance company. The beneficiaries are simply in line to receive money if the insured dies.
But let's not confuse true "guaranteed issue" life insurance with something known as "jet issue". Jet issue policies have small face amounts, usually $50,000 or less. Transamerica is one of the big players in the jet-issue market. These policies are frequently marketed to persons with terminal illnesses, and may have a lien of the benefit if death occurs during the first 12-24 months following issue.
And we've all seen the Colonial Penn ads on TV hawking
their "$0.35/day" or "$7.95 per unit" "no questions asked" policies for persons age 45-85. $25,000 is the limit. But the old dude with one foot in the grave can have it, and CP will write the check. Because plenty of other old, sick folks who turned down life insurance at $30/mo when they were 21 years old, will sadly pay $200 per month for a $25,000 policy at age 75.
Most executive-level guaranteed issue policies are made available based on an agency's internal underwriting staff's work. And as a courtesy for placing millions of dollars of face amount with them to backstop employee/executive benefit plans. Even the policies for the deferred comp plans are issued with guaranteed increases (within certain limits) in face amount consistent with executive pay raises.
The insurer relies on the agency underwriter who gathers the basic data necessary for the application, including health history -- as in any life application -- but without the usual need for blood & urine, or paramed exam, or an EKG, or a treadmill test, or the APS.
What the insurance company "guarantees" is to "issue" a policy without applying its own underwriting criteria to the application. The expectation of the insurance company is that the agency is not going to submit an application on someone who is already suffering a terminal illness, or currently undergoing cancer treatments -- as always, the agent/agency is the "field underwriter". But it will issue a policy to someone who smokes three packs of cigarettes a day, has high blood pressure, and is overweight.
Because their employer is going to fill the insurer's coffers with premium dollars. Lot's of them. At competitive, but less favorable than standard rates.
This is not the kind of policy that the average Joe is likely to obtain through his local independent agent, and he's not getting it through a captive. Some of the IMOs who are placing high volume premium dollars with certain insurers will be able to obtain the same kind of consideration, because the IMOs have their own internal underwriters to do the work, and they may specialize in placing otherwise hard to place risks, because they're also placing a lot of good risks that will be paying healthy premiums for many years.
If there are agents actively marketing "guaranteed issue" policies as a matter of course, those are going to be issued with less than standard rates, limited death benefits (perhaps up to $250,000).
Still, none of this harms a beneficiary. How could it?
Posted: Sat May 08, 2010 09:34 am Post Subject:
Some people have told me that there's some "graded benefits clause" attached to such policies which would protect them from frauds. Do we really have such clauses attached to guaranteed issue policies? If so, how do such clauses help us?
Posted: Mon May 03, 2010 09:27 pm Post Subject:
The advantage is you don't have to prove insurability. The disadvantage (assuming you are not a standard risk) is the cost will be higher than if you were able to qualify as a standard risk and/or the insurance face amount may be less they would offer to you than as a standard risk.
On the other hand, the insurer may simply be interested in the cash flow of the premium, and give you a standard rate on a high value, high premium policy.
Not really much in the way of downside to a GI policy unless the insurer is about to be liquidated.
Posted: Tue May 04, 2010 07:30 am Post Subject:
A guaranteed issue life policy doesn't raise questions. But remember, that it's quite different than those policies which don't need any medical exam. You don't need to answer any question regarding your eligibility or health.
Posted: Wed May 05, 2010 08:45 am Post Subject:
You won't be able to have this kind of insurance beyond a certain coverage limit. The premiums are also higher in general. This happens due to the fact that the guaranteed issue policies are meant for the senior citizens and for people who bear more of medical risks.
Posted: Wed May 05, 2010 02:43 pm Post Subject:
Not entirely true. Guaranteed issue policies in 6 and 7 figure death benefit amounts are routinely issued to major corporations to cover executives and to backstop non-qualified benefit plans such as deferred compensation or salary continuation plans. But the premiums are higher than most standard risk policies of the same amount.
There is still a minimum of underwriting performed, but it is designed to make sure that a policy is not being issued to someone who has a terminal condition such as cancer. That underwriting is usually done by a third party other than the corporation or the insurer.
In these cases, the insurer is counting on having the cash flow more than the effect of paying a claim.
Posted: Thu May 06, 2010 02:28 am Post Subject:
Not entirely true. Guaranteed issue policies in 6 and 7 figure death benefit amounts are routinely issued to major corporations to cover executives and to backstop non-qualified benefit plans such as deferred compensation or salary continuation plans. But the premiums are higher than most standard risk policies of the same amount.
While I agree that his does happen. I think the other posts were more directed at single consumer driven purchases. I haven't run across a company that allows for a seven figure death benefit amount to be issued at guarantee issue.
We left out another common trait of guarantee issue policies. They tend to be return of premium products for the first couple of years, and only after that period, will a death benefit be paid.
Posted: Thu May 06, 2010 04:40 am Post Subject:
When I was with one of the major agencies specializing in Executive Benefit Plan administration a few years ago, we had several carriers that routinely made available $1 million to $5 million GI UL/VUL policies for some of our larger clients.
Of course, we had developed a long-standing relationship with the insurers, who already had several hundred million of face amount in force through us covering a number of insureds and plans, so we could exert influence that few agencies, let alone individual agents, might ever dream of. If Company A turned us down, we had Companies B, C, D or more waiting for our calls.
The carriers included names such as Pacific Life, Mass Mutual, NY Life, Connecticut General, and Manulife. In some instances, there were previously medically-underwritten policies on the same insureds in force.
Some of the policies were also split-dollar, and all premiums were being paid on an annual basis -- which often meant $20,000-$30,000 or more per policy. In some of our non-qual plans, our corporate clients were paying annual premiums of $20-$30 million on blocks of several hundred policies to cover deferred comp and salary continuation arrangements.
Posted: Fri May 07, 2010 11:15 am Post Subject:
Don't you guys think that these guaranteed life policies are a bit risky?
If we'd continue paying for such high coverage cost and in return if we have a lower coverage amount, then don't you think our beneficiaries would be the losers in the end?
Posted: Fri May 07, 2010 09:04 pm Post Subject:
To state the obvious, if there is a minimum of underwriting, it is not guaranteed issue. It may be simplified issue, but it isn't guaranteed issue.
Juanita, the beneficiaries aren't the losers. The people who buy guaranteed issue policies on themselves are people who for one reason or another can't get underwritten policies.
When these are done on a group basis, it's almost always done with the company paying the premium and everyone in the class participating. What happens is because the insurance company knows that they'll be a certain number of lives and there won't be cherry picking (healthy and unhealthy people get coverage), the insurance company can price it appropriately. The coverage is more expensive than a healthy person would typically pay and cheaper than what an unhealthy person would pay.
Posted: Fri May 07, 2010 10:06 pm Post Subject:
Don't you guys think that these guaranteed life policies are a bit risky?
The risk is all to the insurance company. The beneficiaries are simply in line to receive money if the insured dies.
But let's not confuse true "guaranteed issue" life insurance with something known as "jet issue". Jet issue policies have small face amounts, usually $50,000 or less. Transamerica is one of the big players in the jet-issue market. These policies are frequently marketed to persons with terminal illnesses, and may have a lien of the benefit if death occurs during the first 12-24 months following issue.
And we've all seen the Colonial Penn ads on TV hawking
their "$0.35/day" or "$7.95 per unit" "no questions asked" policies for persons age 45-85. $25,000 is the limit. But the old dude with one foot in the grave can have it, and CP will write the check. Because plenty of other old, sick folks who turned down life insurance at $30/mo when they were 21 years old, will sadly pay $200 per month for a $25,000 policy at age 75.
Most executive-level guaranteed issue policies are made available based on an agency's internal underwriting staff's work. And as a courtesy for placing millions of dollars of face amount with them to backstop employee/executive benefit plans. Even the policies for the deferred comp plans are issued with guaranteed increases (within certain limits) in face amount consistent with executive pay raises.
The insurer relies on the agency underwriter who gathers the basic data necessary for the application, including health history -- as in any life application -- but without the usual need for blood & urine, or paramed exam, or an EKG, or a treadmill test, or the APS.
What the insurance company "guarantees" is to "issue" a policy without applying its own underwriting criteria to the application. The expectation of the insurance company is that the agency is not going to submit an application on someone who is already suffering a terminal illness, or currently undergoing cancer treatments -- as always, the agent/agency is the "field underwriter". But it will issue a policy to someone who smokes three packs of cigarettes a day, has high blood pressure, and is overweight.
Because their employer is going to fill the insurer's coffers with premium dollars. Lot's of them. At competitive, but less favorable than standard rates.
This is not the kind of policy that the average Joe is likely to obtain through his local independent agent, and he's not getting it through a captive. Some of the IMOs who are placing high volume premium dollars with certain insurers will be able to obtain the same kind of consideration, because the IMOs have their own internal underwriters to do the work, and they may specialize in placing otherwise hard to place risks, because they're also placing a lot of good risks that will be paying healthy premiums for many years.
If there are agents actively marketing "guaranteed issue" policies as a matter of course, those are going to be issued with less than standard rates, limited death benefits (perhaps up to $250,000).
Still, none of this harms a beneficiary. How could it?
Posted: Sat May 08, 2010 09:34 am Post Subject:
Some people have told me that there's some "graded benefits clause" attached to such policies which would protect them from frauds. Do we really have such clauses attached to guaranteed issue policies? If so, how do such clauses help us?
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