When you are shopping for life insurance, there are many options when it comes to insurance companies, product type, and optional coverages. But, what about underwriting? There are options for underwriting as well.
Which type of underwriting is best? What are the differences? Which underwriting delivers the cheapest rate?
Here, we’ll discuss the difference between No Exam Life Insurance versus Medical Exam Life Insurance so you can make an informed decision about buying a policy that is best for your circumstances and budget.
What is Medical Exam Life Insurance?
In simple terms, fully underwritten means you will be required to undergo a life insurance medical exam. The exam is not the same as a “physical” and can typically be done in your home or office and is not usually done by a physician. And more importantly, the insurance company pays for the exam.
A medical exam life insurance policy is usually limited to measuring your weight, height, and blood pressure, and answering a lot of questions about your health and lifestyle. Depending on the type of policy you are purchasing, your age and the amount of coverage comes into play, and you may also be required to provide a blood and urine sample.
The questionnaire that your examiner will use normally takes the most time of this fairly brief medical exam. This is because the examiner will inquire about your current health and your health history. They’ll also ask about doctor visits, past hospitalizations, and medications that you are currently taking.
The lifestyle questions are typically the normal stuff like drinking or smoking habits, unprescribed drug use, exercise and physical activity like scuba diving, mountain climbing, and any piloting of small aircraft. In some cases, the examiner may also ask about your immediate family’s health history.
In addition to a life insurance medical exam, your insurance company will typically order a medical report from the Medical Information Bureau (MIB), a report from a national RX database, and your driving record (MVR) for the last five years.
The most important thing about your medical exam is that it confirms the information you provided on your application and that there is no indication of false information or omission of pertinent health information.
There are cases, however, when a health issue is revealed that the applicant was not aware of. For example, Hepatitis C is a serious disease that typically doesn’t present symptoms for ten or more years. It’s not unusual for a person to find out that they have this disease after providing a blood sample for a life insurance exam.
What are the Pros of choosing Medical Exam Life Insurance?
Choosing a medical exam life insurance policy has advantages, especially when you’re younger and healthy:
- Typically results in lower insurance rates
- Allows the applicant to purchase a higher death benefit than a no-exam policy
- Can be done at home or in your workplace
- Generally takes about 30 minutes
What are the Cons of choosing Medical Exam Life Insurance?
There are disadvantages to choosing to go with a medical exam life insurance policy, especially if you are older and not sure of your health status:
- Slows down the underwriting and policy issuance process
- The discovery of health issues you were not aware of that causes a rate increase
- The results of the exam might cause a declination of coverage
- Having an unknown person question you about health and lifestyle
- Making time to do the exam
What is No Exam Life Insurance
When you choose non-medical or no exam life insurance, the company relies on your answers on the life insurance application, the MIB report, the RX report, and does not require a medical exam. No exam life insurance has advantages and disadvantages as well:
The Pros of No Exam Life Insurance
- Your policy is typically issued much faster than fully underwritten life insurance
- Normally, you can qualify even when you disclose pre-existing conditions
- No additional health questions or blood and urine tests
- Most applicants are accepted
The Cons of No Exam Life Insurance
Although no exam life insurance is easier and faster to apply for and get issued, there are disadvantages for the applicant:
- The rates are typically higher than fully underwritten life insurance
- The policy face amounts are generally capped and you may not be able to buy as much insurance as you need.
- You can still be declined based on an MIB or RX report
Types of No Exam Life Insurance
There are four types of no exam life insurance policies that everyone should know about. Although they have the “no exam” factor in common, there are several differences in the policies. They are as follows:
- Simplified Issue Term/Universal Life
- Guaranteed Issue Whole Life
- Graded Death Benefit
- Final Expense Life Insurance
Simplified Issue Term Life and Universal Life
As the name suggests, this policy is easy to obtain as the approval process is designed to be quicker than the other methods. The insurance company permits an easier underwriting process for specific health classes.
These policies have certain coverage limits, and their is an underwriting process that the applicant needs to go through. The costs are slightly higher, but if they want a faster process, then this is the policy to get.
Depending on the applicant and the insurance company, the decision to approve the policy may be immediate, and sometimes the companies may take only a few days to process the policy. There are, however, some companies that request medical records or ask a few questions over the phone before the approval process.
It is suitable for people who are at their least average health and need a coverage amount of more than $50,000.
Note: Some companies may start out as a no exam life insurance policy and then request a paramed if more information is needed.
Guaranteed Issue Whole Life
Everyone who applies for a guaranteed issue whole life policy is approved. All they need to do is fill out the application and make their first payment. Everything else is taken care of by the insurance company.
However, the premiums for guaranteed issue whole life are higher than other life insurance policies. Since the insurance company puts full faith on the applicant and knows nothing about them literally, they mark the premium up significantly. The reason for the high premium is the insurance company takes on a higher risk for every applicant.
The premium amount for a guaranteed issue whole life policy will depend on the gender, age, and state of residence. There are no health classes in this policy because the insurance company will not check any health record of the applicants.
There is another catch to guaranteed issue whole life. Apart from the high premium rate, there is also a waiting period to become eligible for a guaranteed issue whole life. Usually, the waiting period is for two years, and if the applicant dies in these two years, their family member or their beneficiary will not receive any death benefit payout, only the premium paid in plus 10%.
Insurance companies need an extra buffer for these policies because there is no underwriting. Apart from these regulations, there are no significant rules that this policy has. The applicant may need to be within 50-85 years of age to apply for this policy, but the age limit can vary depending on the company you choose.
Guaranteed issue whole life is the only option for people who are suffering from a severe medical condition that doesn’t allow them to opt for traditional life insurance plans.
Graded Death Benefit
Many applicants think that graded death benefit and guaranteed issue whole life are the same because their rules are almost similar. However, there are a few differences. Graded death benefit policies will have a few questions depending on the insurance carrier.
Applicants need to pass all the questions to become eligible for a graded death benefit policy. Most of the answers to the questions will be “No.” For example, “Do you have HIV or AIDS?” “Do you have any terminal illness?” and so on. The questions may vary according to the insurance companies, but the standard answer should be “No.”
Instead of making the applicants go through a waiting period, graded death benefit policies are slightly flexible when it comes to paying the death benefit. For example, if the applicant dies within one year, an amount of 25% of the death benefit is paid to the beneficiary, if the insured dies within two years, 50% of the death will be paid, and so on.
The terms and conditions may change depending on the insurance company. One of the reasons why people are so enthusiastic about graded death benefit policies is they are less expensive compared to the guaranteed issue whole life policies.
Since there are at least a few health questions in a graded death benefit policy, the cost of the premium is slightly lower than guaranteed issues whole life. Also, graded death benefits have a higher cap on their coverage amounts. Compared to the $25,000 for guaranteed issues, applicants can expect a coverage amount of $50,000 on graded death benefit life insurance.
Final Expense Life Insurance
Many insurance companies refer to final expense life insurance as “senior life insurance” or “burial insurance.” The coverage objective of final expense life insurance is different than traditional life insurance.
Traditional life insurance is meant to protect the applicant and their family against untimely death. Final expense life insurance, on the other hand, is intended to cover the costs associated after the death of the insured. This will include ceremony costs, burial costs, small debts, and final medical bills.
The primary objective of final expense life insurance is to prepare for the deceased with dignity and prevent the family members from spending a fortune on the funeral. Usually, the coverage involved for the funeral approximately $9,000 to $10,000.
Final expense life insurance policies are small and permanent with a level death benefit and guaranteed level premiums. This means the premium amount on final expense life insurance policies will not increase in the future. Once an applicant signs the documents, they need to pay the same premium amount until they die.
There will be no change in the death benefit amount. So, if one takes a policy of $10,000, the beneficiary will get $10,000 and not a penny more. Also, the policy will not expire until you die. The payout will only activate on the death of the applicant provided he/she pays the last premium.
Unlike graded death benefit or guaranteed issue, there is no waiting period for final expense life insurance to take full effect. Even if the applicant dies a few days after the policy goes into force, their beneficiary will receive the full payout amount. This policy is best for people suffering from minor health issues, and who don’t want their family to spend thousands on a funeral.
The decision to take a final expense life insurance policy will depend on the medical condition and the future planning of the applicant’s family. These policies are beneficial for a certain number of people looking for immediate coverage.
Check out our post about final expense life insurance here.
Which Policy is Best for Me? No Exam Life Insurance or Medical Exam Life Insurance?
Choosing an insurance company is a personal matter. Since we all have different circumstances and different needs, what works best for a co-worker might not be the best solution for you. Medical exam life insurance is generally used for applicants who are in good health and want a lot of life insurance at the lowest rate possible. To accomplish this, your insurance company will require as much information about you as possible.
If you are in a hurry to get covered or your health might become an issue, no exam life insurance might be the better choice. Yes, you will likely pay more for your life insurance, but you’ll be able to get a policy issued easier and much quicker.
Also, people are busy and a lot of people are very private and would prefer not to have a stranger in their home or workplace asking a lot of questions about their health and lifestyle. But keep mind, if you need a million dollars in coverage, there are few companies, if any, that will allow you to purchase that much coverage without a life insurance medical exam.
Medical exam life insurance compared to no exam life insurance is going to be a lengthier process, because of the underwriting process. But with medical exam life insurance you could qualify for the best rates available.
If you have any questions about medical exam life insurance or no exam life insurance please give us a call.