No matter who you are, like it or not, life insurance has got to be a part of your plan. Sure, those pesky medical exams may seem to stand in the way, but did you know there are some types of insurance that leave out that part altogether?
Here’s what you need to know . . .
What Is No Medical Exam Life Insurance?
No exam insurance is a life insurance policy that does not require the insured person to take a medical exam before approval to buy the policy.
At first glance, this type of insurance may appeal to you. Many people have a real fear of doctors and anything doctor-ish. Others are afraid they’ll be rejected because of a preexisting condition. When it all comes down to it, fear seems to be the main reason people shoot for getting a policy like this.
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We want to give you a heads-up here: You will need to disclose any condition you have on the medical questionnaires. If the insurance company finds you’ve hidden something on your application that you end up dying from, your death benefit will most likely be withheld from your beneficiaries. And . . . that’s the whole reason you're getting the insurance in the first place, right?
How Does Life Insurance Without a Medical Exam Work?
In many ways, the no exam process is similar to the regular life insurance process. Once you’re approved for coverage, you simply pay a monthly premium in exchange for life insurance protection. And if you die with the policy in force, your beneficiary receives the coverage amount. The obvious difference is there’s no exam process.
But this is a major difference!
It’s the job of the insurance company to qualify the risk to insure you without a medical exam. They have to go over your other documentation carefully with a fine-toothed comb. Without the exam, they’ll know less about you and your health, so they have to cover their bases by charging more on premiums. Sure, the no exam policy may be a tad quicker to get, but it costs more—sometimes up to double what an exam policy costs! Sheesh! We’ll talk more about that later.
What Are the Types of No Exam Life Insurance?
Now we get down to the nitty-gritty! Here are three types of no medical exam life insurance.
Simplified Issue Life Insurance
When applying for this type of insurance, you won’t have to take a medical exam, but insurers will ask you a string of medical questions. Typically, the questions relate to your medical history, any recent hospitalizations, your height and weight, and your use of drugs and alcohol. They could also research other data about you, like your motor vehicle record or previous life insurance applications.
If you want to get some insurance quickly, you may be tempted to go the simplified issue route, but you’ll find the coverage is usually limited to $500,000 or less. If you make over $50,000 annually, this really won’t be enough insurance, since we recommend coverage of at least 10–12 times your salary. Besides that, you’re not guaranteed approval. And the price for the coverage you get is way up there!
Some companies have begun to offer accelerated underwriting (also called approval express insurance), which is similar to simplified issue insurance. Accelerated underwriting replaces the medical exam with its own questionnaire.
To see if you qualify, the insurance company uses other data sources to get a better overall picture of your health without an exam. They’re pretty resourceful, so they’ll check all the public records available to them. These include your property deeds, criminal court records, bankruptcy documents, professional licenses, tax filings and many more. But it’s just as expensive as simplified—if not more.
Guaranteed Issue Life Insurance
This type of insurance is really a last resort if you can’t find any other insurance because of a preexisting condition. It’s expensive because the insurance company doesn’t even see your medical records. So in their eyes, it’s pretty risky to insure you. And get this: Even though it’s called “guaranteed” issue insurance, it’s not guaranteed. They have some “knockout questions” on the application that will knock you out of eligibility for the program. Strike one!
Almost always, a guaranteed issue policy is a small whole life policy for older people (ages 50–85). And when we say small, we really mean puny! Their death benefits range from less than $1,000 to the rare max of $25,000. Strike two!
On top of that, they have what they call a “graded death benefit.” This means the full death benefit isn’t even paid out within the policy’s first couple of years. So, if you are able to get it, just don’t die too soon!
Strike three—you’re out!
Group Life Insurance
Sometimes, your employer will provide a small life insurance policy for you. You don’t have to answer any questions or take an exam, so it’s considered a no exam policy. Your company presents it as an added work benefit for the employee. The insurance company sets the rates by looking at a cross section of your company’s employees. And typically, the employer pays all or at least most of the premiums.
In most cases, this policy alone will not cover you fully. Dave Ramsey recommends getting insurance on your own. But if you can get it for free, it’s a good deal. We like free! Just know, if the policy payout is over $50,000, any premiums the company pays are considered income, and you’ll have to pay taxes on them. Plus, the policy is not transferable if you change jobs.
How Much Coverage Can You Purchase?
As you can see above, coverages for no exam life insurance are lower than traditional insurance products—maxing out at or below $500,000. And as we’ll see below, they come at a steeper cost. The variances between policies are based on your age, medical history and income.
Dave recommends getting 10–12 times your annual salary in term life insurance. So, if you make over $50,000 per year, you’ll probably need additional insurance because the $500,000 cap just won’t cut it. But if other insurance options aren’t available for your specific situation, the no exam insurance option may be the way to go. After all, some is better than none!
The Cost of No Medical Exam Life Insurance
Insurance companies have to make business decisions to ensure they turn a profit. The insurance business is, after all, a business. To make wise decisions, they’ve got to gather as much information as possible. Risk is the primary motivator, and as Dave Ramsey says, insurance is all about transferring risk. All the information the insurance companies gather helps to determine how risky you are as a policy holder.
Once you fill out your application with them, the insurance company feeds all your information into their little magical medical math machine. This determines not only your insurability, but also how much they’ll charge you for your policy.
You see, the cost of no exam life insurance is normally higher than medically underwritten term policies, because without your health information, companies have to make an educated guess about your life expectancy. With this guess, they’re taking on more risk to insure you, so they have to compensate by raising your rate.
Should I Get No Medical Exam Life Insurance?
Let’s face it: When you compare the amount of coverage you can have and what you pay for it, getting traditional insurance complete with medical exam wins hands down every time! Except for the dire circumstances of an uninsurable medical condition, you should go ahead and get regular medical exam insurance. It’ll make the small hassle of the exam worth it in the end.
Don’t be like most people and wait for a medical emergency to realize life insurance is a must. Spend the time now so your family is taken care of later. After you have your traditional term insurance in place, you’ll be glad you did it. If you’re not sure where to start, contact our friends at Zander Insurance and get your term life today.