What is a no-medical-exam life insurance policy?
More than half of all Americans — 54% — carry some form of life insurance policy. That’s according to the 2020 Insurance Barometer Study from LIMRA, a financial industry consultancy.
A significant fraction of all life insurance policies issued in the United States can be defined as no-medical-exam life insurance policies, also known as no-exam life insurance policies. As the name implies, no-exam coverage does not require a medical exam during the underwriting process. However, insurers may consider applicants’ personal and family health histories and can in many cases deny coverage due to known health conditions or health-related risk factors.
A no-exam life insurance policy is often more expensive than a comparable policy that does require a medical exam. Insurers generally cap no-exam policy death benefits at lower levels than traditional policies as well. But the added cost and potential for less coverage are worth it for people concerned about what a thorough exam might reveal about their health.
Read on to learn more about no-medical-exam life insurance policies and determine whether this type of coverage makes sense for you.
What Is No-Medical-Exam Life Insurance?
The medical exam portion of the life insurance application process is time-consuming and nerve-wracking for applicants. The exam itself usually doesn’t take very long and can often be done in the home. But if lab work is required, the results can take days to arrive and even longer for the insurer to process.
A typical life insurance exam (sometimes referred to as a paramedical exam) is a basic physical exam with a lab work component. It’s usually conducted by a nurse or medical assistant and includes:
- Giving the applicant a detailed questionnaire covering their health history and behaviors
- Checking the applicant’s vital signs, including blood pressure and pulse rate
- Measuring the applicant’s height and weight (to calculate their body mass index)
- Collecting a urine sample or drawing a blood sample for lab work that measures cholesterol, blood sugar, protein levels, and blood antibodies to look for signs of chronic health issues like diabetes, kidney disease, and HIV/AIDS
- Testing the blood or urine sample for signs of nicotine and other recreational drugs
Older life insurance applicants may also need an electrocardiogram (EKG) to assess heart function.
People applying for no-exam coverage avoid this entire process with the possible exception of the health questionnaire. But before they apply, they need to decide which type of no-exam life insurance is the best choice for them: simplified issue life insurance or guaranteed issue life insurance.
Simplified Issue Life Insurance
Simplified issue life insurance is a type of medically underwritten life insurance, which means its issuers do consider applicants’ personal medical history, family health history, and answers to health-related questions. Your application for simplified issue life insurance can be denied due to a known health issue evident in any of these information sources, including behavioral health concerns.
Some insurers treat simplified issue life insurance as a continuation of traditional life insurance coverage, or fully medically underwritten policies.
That is, if you’re relatively young (often below age 45), applying for a traditional life insurance policy with a relatively low death benefit (often below $1 million), and your health questionnaire doesn’t turn up any concerns, the insurer may simply waive your medical exam requirement without charging higher life insurance rates for the convenience.
Other insurers treat simplified issue life insurance as a separate product with a more expensive rate schedule and a separate application track. In this case, you’ll need to decide before you apply whether you definitely do want a medical exam — which could lower your rates if all goes well but may result in higher rates or denied coverage if the test reveals a health concern — or definitely don’t.
A level term life insurance policy provides a fixed death benefit for a finite initial term that usually lasts between 10 and 30 years. During the initial term, the policy premium remains fixed. All else being equal, younger applicants qualify for lower premiums than older applicants.
At the end of the initial term, the policyholder has the option to renew the policy for one or more additional one-year terms. This can be useful if the policyholder still needs coverage, but it comes at great cost: a far higher premium due to the now-much-older policyholder’s higher risk of death.
Applicants who expect to need life insurance coverage well into their later years, or who want the option to borrow against their policy’s cash value, can opt for simplified issue permanent life insurance instead.
Permanent life insurance coverage comes in several flavors, including whole life insurance, universal life insurance, variable life insurance, and variable universal life insurance. Each flavor has its own quirks, but all remain in force indefinitely (until the policyholder dies or stops paying the premium) and build cash value over time. Permanent life insurance premiums are an order of magnitude higher than term life premiums for comparable death benefits — usually five to 10 times higher.
Simplified issue life insurance is increasingly popular. Most of the best life insurance companies in the U.S. now offer this type of no-medical-exam coverage.
A key feature of simplified issue life insurance is accelerated underwriting. “Accelerated” means different things to different insurers and for different applicants. Some term life insurers use complex risk management algorithms to immediately approve young, healthy applicants whose digital health questionnaires raise no red flags.
Other term life insurers and most permanent life insurers are more thorough. Although accelerated relative to traditional fully medically underwritten coverage, their underwriting process may include some or all of the following steps:
- Getting a report from the MIB showing detailed information from previous life insurance applications going back three to five years
- Conducting an initial phone interview to verify information submitted on the application and possibly to conduct a verbal health screening
- Sourcing medical records from current and past medical providers, including medical prescription records
- Sourcing recent motor vehicle and driving records (usually going back seven years) that may raise concerns about risky behavior, such as a DUI conviction
This process can take a few days to a few weeks, depending on how thorough the insurer wants to be. But full medical underwriting for term or permanent coverage takes even longer — expect four to six weeks.
Like the application and underwriting process, simplified issue coverage limits vary by insurer. In general, expect simplified issue term life insurance death benefits to top out between $500,000 and $2 million, depending on the insurer and your age when you apply.
However, simplified issue death benefits have gradually risen over time, and it’s now possible to find policies with benefits as large as $3 million.
Simplified issue life insurance has several clear benefits for applicants:
- It’s Faster Than Full Medical Underwriting. No-exam underwriters complete their work more quickly than full-bore medical underwriters — sometimes near-instantaneously. If you need coverage right away for whatever reason, no-exam may be a better fit.
- It’s More Convenient Than Coverage That Requires an Exam. Many life insurance providers offer in-home medical exams, but some still ask applicants to visit a clinic, adding travel and waiting time. Even in-home exams generally require urine or blood samples, which are a drawback for some.
- It May Be the Only Viable Option for Applicants With Significant Health Concerns. No-exam coverage is usually more expensive than fully medically underwritten coverage, but not always. For applicants concerned that an insurance exam would turn up a potentially disqualifying health issue, such as a protein imbalance suggestive of latent kidney disease, no-exam coverage could be the only path to any protection.
- It May Offer a Favorable Cost-Benefit Balance for Younger Term Life Applicants. Although marginally more expensive than comparable policies with full medical underwriting, simplified issue coverage is quite affordable for younger applicants (those in their 20s and 30s) seeking shorter-term coverage (20 years or less). Even if you’ll pay more over the life of the policy to forgo the medical exam, the extra cost is likely to be minor and easy enough to adjust your budget around.
The most obvious drawback to this type of no-exam life insurance coverage is the potential for — if not always the reality of — higher insurance rates.
According to Haven Life’s life insurance premium calculator for its Haven Simple no-exam product, a 35-year-old nonsmoker male in excellent health can expect monthly premiums of about $27 on a $500,000, 20-year term policy. Were he to consent to medical underwriting on a Haven Term policy, the same applicant would pay as little as $20 per month for an identical policy.
These are only estimates. For both types of policy — simplified issue and traditional life insurance with medical underwriting — health-related information can affect premiums. Applicants whose health questionnaires, medical records, or medical exams flag health concerns can wind up paying far higher premiums than they expected.
Guaranteed Issue Life Insurance
The other common type of no-medical-exam life insurance is guaranteed issue life insurance.
With a very low death benefit — often topping out at $25,000 — and an underwriting process that won’t reject applicants for any health-related reason, guaranteed issue life insurance is appropriate for older policyholders who don’t want their passing to cause an immediate financial burden for their survivors.
For this reason, insurers often market guaranteed issue life insurance as “final expense life insurance” — the idea being that the death benefit pays for funeral and burial costs and not much else.
Guaranteed issue life insurance is almost always structured as whole life insurance. Insurers may accept applicants much older than the typical cutoff age for medically underwritten term or permanent life insurance — up to age 85 or 90, in some cases. The minimum applicant age is usually higher as well — 45 is a common starting point.
The guaranteed issue life insurance underwriting process is even more straightforward than the simplified issue underwriting process. It does not involve any health questions or consideration of known medical conditions.
Underwriters may still look at non-health factors, such as age and driving record, to set policy rates. But they won’t deny an application solely on the basis of health status. For this reason, underwriting is often fast, without the weeks-long assessments required by traditional life insurance and some simplified issue life insurance policies.
One of the biggest differences between simplified issue life insurance and guaranteed issue life insurance is the amount of life insurance coverage applicants can get.
Most guaranteed issue life insurance providers offer a maximum death benefit of $25,000. Some unusually generous insurers offer death benefits as high as $50,000 or even $100,000, but those levels aren’t typical. Specialty insurers may increase the death benefit in certain clearly defined circumstances, such as AAA Life’s doubled death benefit (up to a maximum of $50,000) for policyholders who die in covered travel accidents.
Guaranteed issue life insurers may further insulate themselves from risk by refusing to pay out full death benefits for policyholders who die soon after its issuance. This is known as a graded death benefit, and it’s designed to protect insurers from the financial risk of insuring terminally ill applicants.
Under a graded system, death benefits usually phase in over a period of one to two years. Early in the policy, beneficiaries may receive only a small portion of the total possible death benefit.
While guaranteed issue life insurance can be prohibitively expensive, it is the best (and sometimes only) life insurance option for certain applicants. Its best-known benefits include:
- It’s Available to Older Applicants Than Other Types of Life Insurance. Guaranteed issue life insurance eligibility usually covers applicants as old as 85. In some cases, guaranteed issue coverage is available to even older applicants.
- Applicants Can’t Be Denied for Medical Reasons. Guaranteed issue life insurance does not turn away applicants even with serious health concerns. For this reason, it is considered a last resort for people who can’t qualify for other types of life insurance.
- It Reduces Policyholders’ Financial Burden on Loved Ones in Death. Although its maximum death benefit is less generous than that of other types of life insurance, guaranteed issue life insurance is often adequate to cover the cost of the policyholder’s funeral, celebration of life, and other expenses incurred by their death — even if they die with no savings. This is where the term “final expenses insurance” comes from.
Guaranteed issue life insurance is significantly more expensive than traditional and simplified issue policies. Precisely how much more expensive depends on the applicant’s age, risk profile, desired death benefit, and the insurer.
The cost is often eye-watering, even for younger applicants. A $5,000 guaranteed issue policy for a 50-year-old applicant costs no less than $20 per month for females and $29 per month for males with AIG Direct, for example. That’s expensive enough that these hypothetical applicants would pay more in premiums than they’d receive in death benefits were they to live past age 70 (for females) or age 64 (for males).
No-medical-exam life insurance is likely (but not guaranteed) to be more expensive than traditional life insurance, especially for older applicants. And yet it offers some clear benefits for would-be policyholders, including a rapid and convenient application process, the assurance that the results of a medical exam won’t be disqualifying, and the peace of mind that comes with adding a layer of financial protection that could outlive you.
Before you apply for no-medical-exam coverage, use a life insurance calculator to crunch the numbers and determine whether no-exam insurance really is the best fit for you. Even term life insurance qualifies as a long-term investment in your family’s financial security, so this is a decision that’s worth getting right.