The Pros and Cons of No Exam Term Life Insurance

Original article submitted by expert chartered life underwriter Peter Lawley, AUA

Did you know that you can get life insurance without needing to take a medical exam? It is called No Exam Life Insurance and it is offered by companies such as Fidelity Life and RBC, among others. The major appeal of this form of life insurance is that it is very convenient. You go online, fill out an application, and receive coverage right on the spot. Here is a list of some of the benefits of No Exam Life Insurance:

• It is very convenient
• Instant approval
• No tests
• No complicated forms
• 30 day money back guarantee
• Choice of 10, 20, or 30 year term
• No wait
• Easy to qualify

...sounds great, right?
Well the benefits are certainly there, but there are a few trade-offs that anybody considering a no-exam policy should be aware of:
No Exam Life Insurance can be a bit more expensive for a given amount of coverage as compared with the kind that requires an exam, and the amounts of coverage top out at around $250,000 for most carriers.

One very important thing to keep in mind is that No Exam Term Life Insurance is not a Guaranteed Issue product.
Guaranteed issue insurance, when used in connection with life insurance means that a plan will be offered regardless of a person’s medical condition. Group health insurance is the most common form of guaranteed issue life insurance, but some states offer guaranteed issue plans on the individual market as well.

Those who have become HIPAA eligible are also entitled to guaranteed issue plans. It is important to keep in mind, however, that just because a plan is guaranteed issue, it doesn't mean that there aren't certain requirements that must be fulfilled before one is offered. In the case of group health insurance, there may be waiting periods of up to 90 days, and in the case of HIPAA eligibility, often one must exhaust very costly COBRA benefits.

In fact there is no such thing in the life insurance world. When you fill out your application, you will notice that detailed questions will be asked about one's health history, alcohol use, smoking habits, family health, etc, and it is extremely important to be as accurate as possible.
As a condition of issuance, life insurance companies reserve the right to conduct an investigation before disbursal of funds, and they have become very skilled over the years in finding errors in the original application.

If you think you have a condition which disqualifies you for no exam life insurance, it is very important to speak to an agent who hopefully represents at least 5 of the major reputable life insurance companies--companies such as AIG, West Coast Life, Banner, RBC, Fidelity, etc. Each life insurance provider looks at risk differently so it makes sense to go to several companies (or have your agent do this work for you).

Why No-exam life Insurance?

Term life insurers always prefer to insure healthy people, who are less likely to die young and make a claim during their specified term. It is for this reason that they issue medical exams in order to give themselves as much information as possible on which to base a health assessment and issue a quote accordingly. If you are unlucky enough to suffer from, or have suffered from a pre-existing condition, then you may not even qualify for life insurance at all. These people can include those with diabetes, cancer, heart complaints or even those for whom genetics have deemed it likely to contract an illness. For these individuals, no-exam life insurance is an alternative option.

Who Qualifies for this Insurance?

Those with a reasonable bill of health when they sign up for no medical exam (often referred to as the paramedical exam) life insurance should qualify with relative ease. On the other hand, those who suffer from a serious illness such as Type 1 diabetes or cancer may face difficulties. The level of trouble faced depends largely on which type of no exam policy you are applying for.
If you need to submit information verbally, then you may save money as you are giving the insurer a better chance of determining their risk. Policies that require no information at all can be at the more expensive end of the scale as these insurers have to cover themselves for the escalated likelihood of a payout.

What are the Types of No-exam Life Insurance?

• Graded Benefit: This type of no exam insurance is ideal for elderly persons, but not for the young as the underwriting process is complicated, they come with short payment terms and benefits time out.
• Simplified Issue: These policies require no medical exam, but as mentioned above, do require a verbal declaration of health in order to complete the underwriting process.
• Guaranteed Issue: Not technically a no-exam insurance, this will cost you more but will guarantee you a policy with no questions asked with regards to you health or medical history.

Who Buys No Medical Exam Life Insurance?

Those in the earlier stages of their life won’t benefit as much from no exam life insurance, but for those elderly citizens who find doctors to be untrustworthy, or have an innate dislike of the medical profession and its bureaucratic nature, it is often an ideal solution.
This type of insurance has a much shorter underwriting process which also appeals to those who can afford it, as there isn’t the chain of paperwork or medical professionals’ involvement which always serves to add time to a person’s waiting period.

The Disadvantages of No Medical Exam Life Insurance

No-exam life insurance comes with many benefits, but as with anything that allows for greater discretion and personal freedom, it comes at a price. Standard term or whole life policies are cheaper by design, as they pose far less risk to the insurers. Risk and pricing are contrary in scale as far as insurers are concerned, and this is no more apparent than with no-exam policies. It functions mainly as a source of financial stability for those with pre-existing conditions or who have been refused life insurance for any other reason.

JM 1039 156 23012012