If life insurance has spent a little too long at the bottom of your to-do list, you’re not alone.
But if you’re nearing the tail end of your golden years with no savings or life insurance or in place, your loved ones may struggle to cover your final expenses, such as outstanding bills and funeral arrangements. No one really wants that to be their legacy.
Even if you’ve been turned down for life insurance in the past or neglected to buy it while you could afford the premiums, you may want to explore guaranteed acceptance life insurance.
“It’s kind of a morbid thing to think about, but someone has to pay any bills you leave behind,” said Jordan Womack, a customer experience director at MassMutual.
What it is
GALI, or guaranteed acceptance life insurance, is life insurance that you can’t be turned down for as long as you’re within a certain age range. Guaranteed issue policies made up 15 percent of total insurance sales among participants in a 2015 study by the Life Insurance and Market Research Association.1
Just like with any other insurance policy, the policyholder lists one or more beneficiaries. Those beneficiaries can use the eventual payout in any way they choose, though these policies are usually purchased with the intent to cover the policyholder’s final expenses, such as funeral costs, credit card or medical bills.
Unlike whole or term life insurance, guaranteed acceptance life insurance has only one requirement: the buyer has to be between the ages of 50 and 75. There is no medical exam required and applicants cannot be turned down for medical reasons.
Considerations before buying GALI
Sound too good to be true? If you’re considering going for a GALI policy, there are some things you should be aware of.
First, while these policies can be a good option for someone looking to lighten the burden on their family after they’re gone, they don’t have the full range of a more robust life insurance policy. The tradeoff for guaranteed acceptance is that GALI policies, unlike traditional life insurance policies, don’t offer much in the way of cash value. GALI policies are designed specifically to cover final expenses, so the coverage amounts are small relative to other life insurance products and cash value accumulation is minimal.
That helps to make the premiums more affordable depending on the level of coverage you choose, but it also means that a GALI policy is not the product you’d buy if your goals include tapping into the policy’s cash value while you’re still alive or leaving an inheritance behind.
“I wouldn’t qualify this as a financial planning tool,” said Womack. “This isn’t about generating retirement income or cash value. But the average cost of a funeral is a huge burden to leave on your loved ones if you didn’t have anything in place, and a guaranteed acceptance policy can help address that gap.”
Potential buyers should explore other options available before going for a GALI policy. Consider the plight, said Jeremy Hallet, CEO and founder of Quotacy/Hallett Financial Group in Minneapolis, Minnesota, of a person who starts to get nervous when they see a TV commercial talking about paying for final expenses.
“You are healthy,” he said in an email interview, “or maybe you have a morbidity-type disease like diabetes, or you have had a stent put in your heart, but otherwise you are in pretty good health. There may be other plans available for those consumers that will be less expensive” than a GALI policy.
As with any protection product, it’s important to do your research before buying. (Need financial advice? Contact us)
Who is GALI for?
Guaranteed acceptance life insurance policies are designed to meet the needs of people approaching the end, who worry they don’t have enough savings to cover final expense costs, and want to avoid placing that burden on their family. This option may be just right for someone who can’t get a more traditional policy, either because a pre-existing medical condition makes them ineligible or because their age would make a traditional policy’s premiums prohibitively expensive.
For those in a position to write a check or set aside some extra savings, pre-planning and pre-paying for at least some of your funeral is a good way to help your family through a difficult time. But those who lack that financial leeway may find GALI’s monthly premiums more manageable, depending on the coverage amount desired.
GALI policies may also appeal to those on a budget who still want a little extra flexibility for their family when the time comes to pay final bills. Because GALI policies pay out to beneficiaries who can then decide how best to put that money to use, you may find them a more appealing and flexible alternative to making payments to a specified memorial contract.
Benefits are limited to a small sum to help cover final expenses and there may be a waiting period during which benefits aren’t payable if you die (MassMutual provides a limited benefit in the first two years). This provision helps to protect insurance companies from the risk that only the people most likely to file claims will purchase insurance.
Guaranteed acceptance life insurance may be a good option for those who can’t afford or don’t qualify for a more traditional life insurance policy, but it’s a good move to do some thorough research before you make any decisions. Contact a financial professional if you need help determining the right choice for your needs and budget.
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1 LIMRA, Individual Life Sales Annual Supplement, 2015.