What to do when you don't qualify for as much life insurance as you'd like

Colin Lalley 1600


Colin Lalley

Colin Lalley

Associate Content Director, Home & Auto Insurance

Colin Lalley is the associate content director of home and auto insurance at Policygenius, where he leads our property & casualty editorial teams. His insights have been featured in Inc. Magazine, Betterment, Chime, Credit Seasame, Zola, and the Council for Disability Awareness.

Published September 25, 2017 | 3 min read

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“Everyone has a plan until you get punch in the face.” It’s true in life, and it’s true in life insurance. You may have a grand plan about your term life insurance – but when you go to apply, you’re told you’re not eligible for the coverage you wanted.

What gives? There are a few reasons why you might need to lower your life insurance coverage expectations. Luckily you still have options, and if you aren’t eligible for term life insurance you can still apply for guaranteed issue life insurance instead. Here’s how.

Why you may not be eligible for term life insurance

If you want term life insurance, why potentially can’t you get the coverage you set out for?

Life insurers group applicants by how risky they are and classify them accordingly. This is usually done during the underwriting process, when a life insurer can really dig into the health and personal history of an applicant. If the applicant is judged to be relatively risky, they may be forced to pay higher rates, get less coverage, or, sometimes be denied coverage altogether.

Sometimes, insurers find cases of risk earlier in the application process. These “knockout” criteria result in an applicant being ineligible for their requested coverage in the initial application — or if you’re using PolicyGenius, even when you’re comparing your quotes before you apply. Examples include:

  • Certain health conditions within a specified window of time

  • Criminal history

  • Recent bankruptcy

  • If the applicant is currently in a nursing home

It’s important you don’t automatically assume that, for instance, if you filed bankruptcy you definitely won’t be able to get your desired level of coverage. You should always compare quotes to see what your options are. And if you do meet any knockout criteria, that doesn’t mean you can’t get any life insurance at all. It just means that you might have to change your plans a bit so the insurer can reduce their potential risk. Guaranteed life insurance is the best way for you to get life insurance when you might not be able to otherwise.

Buying guaranteed issue life insurance

You’ve probably heard of guaranteed issue life insurance before if you’ve seen those Colonial Penn commercials featuring Alex Trebek. While guaranteed issue insurance is often targeted at elderly people because they more often meet one or more of the knockout criteria described above, it can also be useful for other people.

Guaranteed issue life insurance works a little differently than term life insurance. First of all, it’s guaranteed. Unlike term life insurance, which has a thorough underwriting process, or even simplified issue life insurance, which involves a medical questionnaire, guaranteed issue life insurance accepts all applicants. It’s also a type of permanent life insurance, which means it lasts for as long as you pay the premiums.

However, there are a few drawbacks to guaranteed life insurance you should know:

  • Coverage amounts are limited. The maximum death benefit value for guaranteed issue life insurance usually tops out at $25,000.

  • It’s more expensive than term life insurance, so your monthly premiums will be higher than they would be for the same coverage amount in a term policy.

Learn more about guaranteed issue life insurance here.

Why you may need guaranteed issue life insurance

Guaranteed issue may not be your first choice for life insurance, but that doesn’t mean you shouldn’t buy it. Even if it’s not preferred, it may be the only type of life insurance you’re eligible for. And although your coverage amounts may be limited, some protection is better than none. After all, your beneficiaries can still do a lot with a $25,000 death benefit, like:

  • Pay a lot of day-to-day expenses

  • Continue to make mortgage payments

  • Set up a 529 savings plan for college

  • Pay off a large portion of debts

  • Cover funeral expenses

It’s just important to take the lower death benefit and higher premiums into account in your financial planning. Budget accordingly to make sure you can pay for your policy and your family isn’t left relying on more money than they would actually receive.

In the end, don’t get discouraged if you don’t qualify for the life insurance coverage you initially set out for. Know that there are other options out there, and that guaranteed issue life insurance can still help protect your family.

Click here for more information on guaranteed issue life insurance and to start shopping today.

Image: dimabl