Guaranteed Issue vs. Simplified Issue Life Insurance

The difference between guaranteed issue and simplified issue life insurance is the health questions. Simplified issue skips the medical exam but asks about your health, so you can be declined, and if you qualify for a level plan the full benefit usually starts right away. Guaranteed issue asks no health questions at all, so you can't be turned down for health reasons, but it costs more per dollar, offers smaller amounts, and usually pays only your premiums back, plus interest, if you die of natural causes in the first two years.

The rule of thumb: get the most underwriting you can pass. Here is how the two compare, what a graded benefit really means, and the order to apply in.

How do guaranteed issue, simplified issue and full underwriting compare?

They differ in how much the insurer learns about your health before it says yes. Less information usually means a higher price, a smaller policy, or a waiting period.

The NAIC describes simplified underwriting as letting you "forgo the medical exam and collection of fluids in exchange for generally higher premiums." Guaranteed issue goes further: one guaranteed issue whole life plan requires no medical exam and no health questions, and guarantees acceptance for anyone aged 50 to 80, for $5,000 to $25,000 of coverage. For how these fit among all policy types, see our side-by-side comparison of every type of life insurance.

What does a simplified issue application ask?

A simplified issue application asks a short list of yes-or-no health questions, and your answers decide whether you're accepted and which plan you get. The exact questions vary by insurer, so one company may accept a condition another won't.

Some simplified issue policies sort applicants into tiers rather than giving a simple yes or no. For example, one final expense product, Living Promise Whole Life from United of Omaha, bases coverage on "answers to a few simple health questions" and offers two plans:

• Level Benefit Plan: issue ages 45 to 85, $2,000 to $50,000, full benefit from the start.
• Graded Benefit Plan: issue ages 45 to 80, $2,000 to $20,000, and for a natural death in the first two years the beneficiary receives all premiums paid plus 10%.

So "simplified issue" doesn't always mean "no waiting period." Ask which tier you're being offered before you sign.

What is a graded death benefit, and which policies have one?

A graded death benefit pays a reduced amount if you die of natural causes early in the policy, then pays the full face amount after that. It's common on guaranteed issue policies and shows up on some simplified issue tiers.

The clearest public rules come from the Interstate Insurance Product Regulation Commission. Its standards for graded whole life policies, used for products filed through the interstate compact, require that:

• The reduced period for natural causes lasts no more than the first three policy years.
• The reduced benefit is at least the premiums paid plus interest.
• The full face amount is paid for an accidental death at any time.
• The cover page says, in prominent print, "This policy has a limited graded death benefit – Please read your contract carefully."

In practice, two years is common. The guaranteed issue plan above pays 110% to 120% of premiums for a natural death in the first two years, then the full amount.

Our guide to guaranteed issue life insurance covers graded benefits in more depth.

Which should I apply for first?

Apply for the policy with the most underwriting you can reasonably pass, and only move down if you're declined. Each step down trades health questions for a higher price or a longer wait.

1. Fully underwritten coverage. If you're in fair health, this usually gives the lowest price and the largest amounts.
2. More than one insurer. The Washington insurance commissioner's guide says that if one company turns you down, try another, because companies use different methods and factors to decide.
3. Simplified issue, level plan. Full benefit from the start if you can answer "no" to the key questions.
4. Simplified issue, graded tier. Health questions still apply, but some conditions are allowed.
5. Guaranteed issue. For when the other doors are closed.

Veterans with a service-connected disability rating have another guaranteed acceptance option, VALife, which VA says offers up to $40,000 of whole life with full coverage starting two years after you apply. Our situation guide to choosing life insurance covers health issues alongside other life stages.

Why do honest answers matter on a simplified issue application?

Because a wrong answer can cost your family the death benefit. The Texas Department of Insurance explains that life policies have a two-year contestable period. If you die during it and the insurer finds you gave wrong information, it can deny payment, "even if the wrong information was unrelated to the cause of death or was given by mistake." In that case, it must return the premiums.

That's why a guaranteed issue policy with an honest graded benefit is better than a simplified issue policy you only got by shading the truth. The NAIC Buyer's Guide gives the same advice: review the application carefully "to be sure all the answers are complete and accurate."

When is guaranteed issue the right choice?

Guaranteed issue makes sense when you've been declined elsewhere, or when you know your health won't pass simplified issue questions. It's also a way to get some coverage in place quickly while you're still within the age range.

Before you buy, check a few things:

• Total cost vs. benefit. The guaranteed issue plan above discloses that "premiums paid may exceed amount of coverage." If you expect to live many years, add up what you'd pay.
• The graded terms. Is the early benefit premiums plus a set percentage, or a percentage of the face amount?
• Your existing coverage. The NAIC Buyer's Guide warns against dropping a policy until you've studied the new one, and notes that a new policy may, at least at first, "pay no benefits for some causes of death covered in the policy you have now."
• The free look period. Washington requires at least 10 days, and the compact standards for graded whole life call for at least 30 days on policies that aren't replacements.

For more on both paths, visit our policy types guides.