You’ve heard of AARP before. They’re always telling you about how easy and affordable life insurance is for you. You’ve always wondered about that, because life insurance premiums are based on your age and health – the older you get, the more expensive the coverage is. So, how can AARP promise coverage at “affordable” rates?
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The Guaranteed Issue Policy
The “magic” of AARP’s no-medical exam for life insurance is called “simplified issue.” In layman’s terms, it means that your ability to buy life insurance is based on answering a few health questions. No one comes to draw your blood or collect a urine sample. You aren’t poked and prodded.
Sounds like a good deal right? Not so fast. AARP doesn’t actually issue the insurance policy. New York Life does. The two have struck adeal to offer group life insurance and permanent insurance for seniors. Because there’s no medical exam, the insurance company must charge a higher premium than it otherwise would. Why? Because it has to assume that it’s going to insure at least a few “high-risk” people.
Basically, when you buy a simplified issue policy, and you’re reasonably healthy, you’ll be subsidizing a person whose health isn’t so great. You both get insurance, which is good, but you end up paying more for coverage than if you had taken a medical exam and gotten what’s called a “fully underwritten” policy.
AARP has a reputation for being an advocate for senior citizens. It uses its influence to offer life insurance that looks pretty good on paper. For example, when you buy permanent insurance coverage from them, you get:
No waiting period
No medical exam
A simple questionnaire to fill out
Up to $50,000 in permanent life insurance
Simple application process
Rates that don’t increase based on age
You also get a cash value component to help augment your other savings. It’s money you can use during your lifetime for pretty much anything you need. Any cash you borrow from your policy, however, does decrease the amount of death benefit that is left to your heirs unless you pay the money back to the policy before you die.
While the Q&A section on AARP’s Permanent coverage does say that you can’t be singled out for a rate increase, some policies do haveincreasing premiums- that is if AARP decides to raise rates for everyone. This is why they use the language “singled out” – since you won’t be singled out if rates increase for everyone. Term Rates are increased every five years even though the term product states that it’s a level term policy. Also, if you’re converting a term policy to a permanent policy, the new permanent insurance premium will be based on the age at which you make the conversion.
Buying The Best Policy
While AARP isn’t a terrible organization, you probably could do better in terms of rates. For example, if you buy a fully underwritten term life policy from Prudential or Banner, your rates will almost certainly be lower than if you took the simplified issue policy. If you need permanent insurance coverage, you’ve got two solid options: GUL and whole life.
A GUL, or guaranteed no-lapse universal life policy, is universal life coverage where the insurance company guarantees that your policy will never lapse as long as you continue paying the no-lapse target premium specified in the policy contract. Typically, this is a level premium that never increases.
Whole life is basic permanent insurance protection. You get guaranteed death benefits and level premium payments for life. Go with a fully underwritten policy if possible. But if you don’t think you’ll qualify, even the no-exam whole life coverage you get from an independent life insurance broker should offer lower premiums than anything you’ll get from AARP.
That’s key – work with an independent broker, and ask a lot of questions. You’re going to find that your premium is entirely driven by your age, health, and personal insurance needs. When it comes to insurance, the more personalized the service, the better.
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