Simplified Life Insurance
Applying for a life insurance policy can be time-consuming and stressful. Insurers know this and try to create products that simplify the application process. They market some life insurance with promises of no medical exams and guaranteed issue. The reason people buy life insurance is to protect someone or something that they love. They want to provide for their family, ensure the future of their business or support a charitable cause. So, they buy life insurance. However, when it comes to the process of purchasing a life insurance policy, it can be time-consuming. It takes time to complete the application and time to take a medical exam. It is very attractive to some people if they can cut down on the time of applying for a life insurance policy. Or if their health is poor, guaranteed issue is the only way they can acquire life insurance. Just as all that glitters is not gold, short-cuts to applying for life insurance can come with hidden problems.
No Exam Life Insurance
No Exam life insurance may be the answer for people wanting coverage quickly and stress-free. However, are these attractive policies a value or trouble? The way that life insurance companies can offer value is by targeting certain people by age and limiting the level of coverage available. For example, providing people from the age of 18-50 a term life insurance policy and limiting the coverage offered between $25,000 and $300,000 the insurance company knows from past experience that the claims for this segment of the population are very low. They can provide a life insurance policy that is a welcome service to some customers, and they can make a profit with acceptable risk.
No exam policies do have a downside and can be trouble for some people. If the applicant answers yes to any of the health questions, it can cause them to be considered a higher risk and NOT qualify for no exam life insurance. This circumstance can turn out to be a long-lasting problem. Even the most benign of health issues could cause more problems than imaginable. For example, a person applying for no exam life insurance takes a doctor prescribed Vitamin D pill. Taking any prescribed medication can be a reason for not qualifying for no exam life insurance and cause the life insurance company to ask for more premium.
Little do most people know, that any other life insurance company that the individual in this example applies to will find out that extra premium was required. Even if, they declined to take the policy. All medical information gathered from life insurance applications is shared between other life insurance companies. One of the forms that every person applying for life insurance agrees to is an acknowledgment that their personal health information will be shared with a non-profit organization called the Medical Information Bureau or MIB.
Apply to another life insurance company and the fact that extra premium was required will show up. Information from the MIB is not detailed. All other life insurance companies know is that the person in this example was asked to pay an extra premium. That is a red flag that tells other life insurance company that this person’s health needs to be further investigated.
So, is there any value in no exam life insurance? Yes, if the level of life insurance need falls within limits offered. And the answer is yes if there are no pre-existing conditions. If anyone is considering a no exam policy and they take any medication or have had any health problems, even minor health concerns, no exam policies are not for them. Apply for a regular term life insurance policy and go through the medical exam. Work with an agent who can be an advocate through the process and even write a cover letter explaining situations to the life insurance company. The end result would be getting the policy that was expected at a price that was expected.
Guaranteed Issue Life Insurance
What about guaranteed issue policies? To understand how these policies work, put yourself in the insurance companies position. Who would be attracted to a guaranteed policy? The answer is people with health problems or people who do not want to take the time for medical exams. If you do not fit one of these profiles, you probably will be able to get a less expensive life insurance policy if you are willing to go through the standard application process which includes answering health questions and submitting to a medical exam.
There is an exception to the benefits of a guaranteed issue life insurance policy that outweighs the benefits of a traditional life insurance policy. If a large enough group of people is applying for life insurance either through a group benefit plan or a retirement plan, guaranteed issue life insurance policies are very advantageous. I’ll give two examples that I have encountered. One was a company with about 300 employees. The two owners of the company were older and in a bad health. They could not qualify for individual life insurance at all. A guaranteed group life insurance policy was a significant benefit for them. All employees were given a life insurance policy with five times their income as a benefit, and there were no exam or health questions required. Even the minimum wage employees benefited greatly. And the two owners who made about two hundred thousand dollars a year were insured with a million dollars of coverage each and no health questions or medical exam required.
This group continued their group policy for about five years until the company was sold and the benefit terminated. Even though they were older and in a bad health, the owners did not die while with their company. However, over the five years of the plan, two employees did die. One employee made about $30,000 per year and the other made about $50,000. That meant that their families received a life insurance benefit of $150,000 and $250,000 respectively.
The other circumstance where I have seen guaranteed issue life insurance as the best policy to own was in a pension plan for a small medical practice of fifteen people. The life insurance was based on the employees’ level of income. The doctors, who were surgeons, had a cash value life insurance policy with a $800,000 death benefit. The surgical nurses covered under the pension plan had life insurance of $350,000. All fifteen employees had life insurance that was issued with no exam and no medical questions. Any health issues that were in this group were accepted with no questions. For this group guaranteed issue was an important benefit. Within three years of implementing the life insurance policies, one of the surgical nurses died of pancreatic cancer.
Accidental Death Life Insurance
Accidental death policies can be one of the most misleading life insurance policies sold. They sound so attractive yet cover the insured only if they die in an accident. Imagine up to a half a million dollars of life insurance for anyone between the ages of 18 and 70 with no medical exam and no health questions. If the insured dies in a car accident, the benefit is 25% more, and if they die in a plane crash, their beneficiaries will get double the benefit. This policy cost about a quarter of the cost of a traditional term life insurance. Here is the drawback to this policy, the owner must die in an accident for their beneficiaries to be paid. Consider that every year, 1 in 9,737 people die in plane crashes, 1 in 113 people die in a car accident and 1 in 7 people die of heart disease or cancer (National Safety Council, 2016). If a person has a need for life insurance, it would be in their best interest to insure their biggest risk first. If accidental death life insurance is affordable and the major risk of life are insured, that type of life insurance is ok. However only insuring particular risk such accidents is not a good idea.
No exam life insurance, guaranteed issue life insurance and accidental death life insurance are all useful policies if used in a practical manner. In most instances, these policies are purchased instead of standard life insurance because there is a degree of diminished health. Life insurance can be a complex product even when it is marketed as a simplified product. It would be in the best interest of anyone that needs life insurance and has health problems to work with an experienced life insurance agent. They have the resources and education that most people do not have. The best result is getting an affordable life insurance policy to protect loved ones.
References
National Safety Council. (2016). Injury Facts Chart. Retrieved from http://www.nsc.org/learn/safety-knowledge/Pages/injury-facts-chart.aspx