7 September 2012 0 Comments

Is “Guaranteed Acceptance” A Good Deal?

Last week AARP sent me a promotion touting their Guaranteed Acceptance Life issued by New York Life.  From ages 45-80 they will issue up to $15,000 of life insurance just by completing an application and paying the premium.  There are no questions about health, no physical exam and no inspection reports.  During the first two policy years the benefit, for other than death resulting from an accident, is limited to 125% of the premium paid.  After that it’s the full amount for death from any cause.  The premium is guaranteed for life and the policy develops cash values.  At age 77 for a $15,000 policy my monthly premium is $152.50.  Is this a good deal?

This is one heck of a deal if I have a health condition that will result in my death within the next 7 years.  Fortunately that’s not me, but if it were, I couldn’t pass the underwriting tests for any regular policy and the cumulative premium paid through about 8 years will be less than the death benefit.  After that point I would have done better putting my premium under a mattress.  If I were in pristine health and went through the normal underwriting process, I could obtain a $25,000 death benefit from another insurance company for a guaranteed monthly premium of only $119.79.  No cash values in that policy and a minimum policy requirement of $25,000, but a heck of a better buy for pure guaranteed death benefit.

The answer to whether this AARP policy or any other Guaranteed Acceptance programs are good deals is “it depends.”  Don’t buy any guaranteed acceptance policy until you see what is available by submitting an application through the normal underwriting process.  Talk to an agent.  If you have a medical condition that is apt to result in death within a few years, then go for the AARP plan.

If you buy the AARP plan and get to a point when you just can’t afford to continue paying the premium, consider a policy loan to pay the premium, or opt for a reduced paid up policy rather than surrendering for cash.

Coming up:  How does life insurance stack up as a savings plan?

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