Basics of no Medical Exam Life Insurance

Life Insurance without a Medical.

The first thing that you need to know about life insurance is that it is very expensive. You are paying for risk cover for which an insurer will probably never have to pay. Even on whole-life policies death claims are few and far between.

The offer of no-medical-exam life insurance comes at a premium. Less information about you means that the insurance will be on less favorable terms. The additional expense may seem small, but over the term of the policy the extra cost can be quite significant!

Life insurers are in the business of providing financial cover against the risk of death. The risk or cost of life cover is based on the probability of dying. A young, healthy individual from a good healthy family with a healthy lifestyle presents a low risk. In fact a VERY low risk. Insurance companies like to keep the risks to an absolute minimum. This is achieved by looking at the medical history of the prospective client. If there is an increased risk because of a family history of diseases, pre-existing conditions such as diabetes, high blood pressure or a history of coronaries, or if you smoke, drink or partake in narcotics, then the premium is increased accordingly.

Traditionally insurers use a number of medical examinations that they would ask a prospective client to undergo. The higher the sum at risk, the more stringent the testing.

The Life insurance application form usually contains a set of medical, family history and lifestyle questions. If you answer these questions honestly then there is little to be gained by sending you for a medical. However, the company may call for additional information of medical exams if a number of conditions are recorded on the form. If you lie on the form, the chances are that you won’t get paid out in the event of a claim. Non disclosure of material information can and does lead to the forfeit of claims.

The Insurers protect themselves against large claims through reinsurance. They carry a portion of the risk themselves but buy additional cover from large international reinsurance companies. This is managed on the basis of agreements or treaties between the insurer and the reinsurer. The reinsurer will provide cover only if satisfied that the life company’s underwriting procedures are sound.

Some types of life insurance do not require any medical information. These are usually low cost high-volume types of policy. Funeral cover and group-life cover are prime examples of these. The main reason is that the high volume nature of the product means that the risk is spread widely enough to prevent any “anti-selection” risk.

For funeral cover a low sum at risk is coupled with a low premium. While easily affordable to the insured, the premium is actually expensive in relation to the actual risk. The margin for the insurer could be as much as 100%. As the product is a standard “off-the-shelf” offering, administrative and other expenses are low.

Group life schemes are generally put in place for companies and retirement funds. Usually all (or most) members are covered at a blanket rate without medical underwriting. Again, the risk is spread across a large population. In some cases medical underwriting may be required for high earners or those over a cut-off age. The insurer simply needs to cover the risk in terms of the mortality of the general population falling within a specific age range. Again, this type of scheme involves low costs.

For individual life cover where there is no medical exam or medical questionnaire – be careful. This type of insurance may be offered on a high volume basis for low risk amounts. As with funeral cover, the premium seems low but is actually much more expensive than a similar product where medical information is required.

As always, before taking out life insurance get quotes and look carefully at the conditions. Mass marketed life insurance options are usually very expensive.