Simplified Issue Life Insurance

By Compuquotes Team on April 15th, 2010

You've probably heard of "no-exam life insurance" due to daytime television commercials promising guaranteed death benefits with no applications turned down. These no-exam policies have grown in popularity over the past few decades to include offerings from more traditional insurance companies. For some consumers, a no-exam life insurance policy can provide an effective, convenient way to ensure a family's financial wellness due to an unexpected death.

How Simplified Issue Life Insurance Works

For most of us, a life insurance application means answering a list of health questions, taking a medical exam, waiting for the results, and learning whether the results pose an acceptable risk for the insurance company. Simplified issue life insurance policies eliminate the medical exam altogether, while shortening the typical application to just a page or two of key personal data. Although applications are short, underwriters use the information you provide to assess your risk.

MIB Group, a private industry organization, compiles health information provided by consumers on previous insurance applications, including applications for health, life, disability and long-term care insurance. Underwriters for simplified issue life insurance cab quickly access this information to make policy decisions. As the MIB Group's database has grown, underwriters have been able to increase the dollar value of death benefits on simplified issue policies from the four-figure amounts to six-figure sums more commonly associated with traditional term life insurance policies.

Life Insurance Rates Differ Between Simplified Issue and Fully Underwritten Policies

Many life insurance companies assign a higher level of risk, and price, to simplified issue policies, compared to underwritten policies. Younger consumers and applicants in generally good health will likely find more affordable life insurance by undergoing the formal underwriting process and a standard medical exam. Underwriters recognize that the database used to screen their applicants can't catch every risk factor. Therefore, simplified issue life insurance policies often carry monthly premiums larger than policies issued after a medical exam has been completed.

Simplified Issue Available as Term or Whole Life Insurance Policy

With weakness in the stock market forcing many Americans to rethink their investment portfolios, whole life insurance has made something of a comeback. Financial planners once derided whole life insurance policies as less efficient investing vehicles compared to stocks. The convenience of opening a whole life insurance policy with no medical exam attracts consumers who want to use a death benefit payout as a backstop against sliding stock and real estate values.

Typical Simplified Issue Life Insurance Policies

A 2006 USA Today review of typical simplified issue life insurance quotes found that many 40-year old nonsmoking men could get term rates below $350 per month and whole life insurance quotes under $641 per month for a death benefit of $500,000.

Potential Pitfalls of Simplified Issue Life Insurance

The convenience of a no-exam life insurance policy has trade-offs. Typical simplified issue contracts have:

  • Smaller payouts: Few simplified issue life insurance policies offer death benefits larger than the low six figures
  • Relatively higher premiums: Compared to standard policies, simplified issue life insurance policies generally have higher premiums
  • Higher upfront commissions or service charges: Because simplified issue life insurance policies often cost more than comparable term or whole life policies, fees can reduce your overall return on investment.
  • Graded death benefits: Some policies have a pay-out schedule that doesn't provide the full death benefit for several years. If you die within the first several years, your beneficiaries receive a portion of the death benefit. Make sure you know the graded-benefits details and are comfortable with them.

Reasons to Consider Simplified Issue Life Insurance

After weighing all of your options, a simplified issue life insurance policy could still make sense for you if:

  • You have known health issues: Simplified issue life insurance policies require no physical examinations
  • You want a small policy to cover burial expenses and other costs related to your death: During a "pre-need" assessment, many funeral directors now recommend simplified issue life insurance policies that can help pay for upgrades, while ensuring that loved ones need not face embarrassing invoices

Of course, a simplified issue life insurance policy isn't a short cut for consumers in extremely high-risk categories. Even though policy providers build a higher risk into simplified issue products, some consumers still feel compelled to lie on their applications. According to industry experts, providing information inconsistent with past insurance applications may disqualify you from coverage, even if the condition you wanted to hide would not have triggered a declined application.

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