Basics of no Medical Exam Life Insurance

We are a society of spenders and as credit card debt has increased from $8,000/person to $13,000/person in the past 4 years, or 16% annually, the need for life insurance is greater than ever. This rising need, coupled with higher life expectancies, have popularized the no-medical exam life insurance product over the past two decades. Competitively priced products have emerged over the past decade, offering affordable life-options to the average consumer.

You can buy “simplified issues” at your local bank, credit union, or insurance agent. These policies can only be sold, like most insurance products, by a licensed insurance professional.

A licensed professional is anyone who has passed the state life insurance exam and maintained there license with the state insurance commissioner’s office. Without the proper state certifications, it’s unlawful for unlicensed professionals to quote, or solicit and offer to sell life insurance. In recent years, with the repeal of the Investment Advisors Act of 1940 in 1996, Banks and Investment companies have aligned to propagate sales in their various markets. If your local bank or credit union employ individuals who suggest the purchase of life insurance, verify their license, as penalties for non-compliance include fines and/or a cease and desist order.

In addition to higher premium rates, the trade-off for the convenience of a no-medical exam policy is a limited amount of coverage.

You can buy a limited amount of life coverage, with a no medical exam policy, ranging between 250,000-500,000. Usually, the insurance is Term, a policy guaranteed to cover you for a specific period of time (as long as premiums are paid as agreed), although some companies offer no-medical exam whole life.

Whole life policies have maximum face values of 1,000-50,000 and require an applicant to pay premiums for the rest of their life. Make sure you analyze the cost of insurance with life expectancy. For example if an applicant purchases a policy at age 55, and the premium/cost is $50 a month for $10,000 of insurance, your cost is $600/year, and after 17 years of paying into the policy, you’ll have exceeded the amount of benefit. You would have to die before 81 for the investment to be worthwhile.

The process of underwriting is simplified with a no-medical exam policy. Historically, life policies had multiple steps; your agent would ask upfront a series of questions to identify if you qualify, then the insurance company followed up with a medical exam, extensive MIB research, which could include calls to personal physicians, to verify health.

With a no-medical policy, just the generic questions about your current and past health conditions are asked in a yes or no format. Typically, you cannot answer any of the health questions yes, and usually they’ll ask your health history spanning from 3-10 years. Additional questions include participation in high-risk activities; skydiving, car-racing, flying planes, age, weight, personal information, tobacco use, and gender.

If you answer “Yes” to any of the health or activities questions, you are generally ineligible unless you can explain extenuating circumstances; for example, you answered the “hospitalization” question yes because you broke your leg jumping on a trampoline 12 months ago. The insurance company will still pull your MIB (Medical Information Bureau) which tracks your personal medical history, but conclude the incident is not life-threatening. MIB information is private, however if you apply for a no-medical exam life policy, your signature releases this information. Remember, eligibility for no-medical exam insurance is dependent upon the issuing company.

You can buy a “rider” which insures your children with the purchase of your no-medical life policy. Face value benefit amounts are usually offered in $5,000 increments, up to $20,000 and help defray the cost of funeral in the event any of your children die during your policy period. Unborn children are usually covered as long as they are born within the policy term.

If you smoke, your premium will cost more, as the chances of health issues related to smoking increase your chances of dying before the national average.

If you lie on your application, your beneficiaries may not receive the death benefit, however the insurance company will return your premiums paid. Different states have different periods of contestability, the time required for a policy to be in force before an insurance company rules cause of death to deny a claim. Usually, this period is 2 years, but check with your licensed insurance professional to determine your state’s law.

No-medical exam policies offer the general public a fast, convenient solution to under-insurance needs, and provide much needed financial assistance to the survivors of an untimely individual death. Once you sign the dotted line, the agent has asked the questions required, and your MIB back the answers given, you’re insured, without the hassle of scheduling a Paramed and waiting for your application to be approved. As anyone who’s gone through the full underwriting process knows, you can wait up to 2 months before you’re approved and when death is on the line, time can be the greatest factor against you.