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The Pros and Cons of No Exam Term Life Insurance
Article originally submitted by our resident chartered life underwriter Steve Watts, AUA
Were you aware that it is possible to buy life insurance without having to take the paramedical exam? No-exam (or similarly, guaranteed) Life Insurance is becoming more popular with each passing years and is provided by most major carriers.
The major appeal of this form of policy 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:
- 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?
While this type of insurance has many benefits, there are compromises that will have to be made when you buy guaranteed policies.
No-exam term life coverage is usually more expensive than an equal amount of standard coverage, with most providers allowing a maximum $250,000 worth of cover.
Bear in mind that no-exam term policies are not a product that comes as guaranteed. Guaranteed issue insurance, in life insurance terms, means that a policy is guaranteed irrespective of the applicant's medical condition.
Group life coverage is the most popular guaranteed policy yet in some states it is also possible to purchase the policy on an individual basis.
It should be noted that there will still be certain requirements that must be met before an applicant will qualify for any type of guaranteed policy.
When applying for a standard term life policy, detailed questions will be asked with regards to health, such as your smoking habits, your health history, how much alcohol you consume and your family's prior health. It is important to be accurate when filling these details as errors may make your application difficult later on.
Life insurance companies reserve the right, as a condition of issuance, to investigate individual claims before allocating funds and are skilled in uncovering flaws and errors in a person's application, even years later.
If you think you have a condition which disqualifies you for a no exam plan, it is very important to speak to an agent who hopefully represents at least 5 of the major reputable companies--companies such as AIG, West Coast Life, Banner, RBC, Fidelity, etc.
Each 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 (often referred to as the paramedical exam) 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 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 can qualify for it?
Those with a reasonable bill of health when they sign up for no medical 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 guaranteed 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?
Types of guaranteed life insurance can include:
- Graded Benefit: It 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 policies?
Those in the earlier stages of their life won’t benefit as much from no medical exam plans, 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 policies come 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