Pros and Cons of No-Exam Life Insurance

Most life insurance policies require a physical exam, but some can be had without one. While they tend to be much more expensive, there are times when they make sense.

Normally, when you go to apply for life insurance, you have to jump through a certain number of hoops before you’re approved.

The first hoop involves filling out an application, during which you have to answer a number of questions related to your:

Height
Weight
Health issues
Drinking
Smoking
Exercise habits

The second hoop usually revolves around a medical exam of some sort. It could take place in your home, your office, or in a clinic. A paramedical working with the insurance company will be there. They will ask for your medical history as well as that of your immediate family. They'll also ask about any lifestyle choices that could affect your health, check your blood pressure, and draw blood and urine samples, among other things.

In some cases, you may also have to clear a third hoop, which could mean undergoing one or more tests, like an EKG, a chest x-ray, or an exercise stress test.

Finally, a fourth hoop may require you to share your medical records. That's so your potential insurer can review any treatment you’ve received for past or current conditions or issues.

Should you make your way through all of those hoops without a hitch, your application likely will be approved.

The Problem with Traditional Life Insurance Is…

Although that process is acceptable to a lot of people, many others have issues with it.

For instance, some men and women are scared stiff by the thought of going to the doctor. Others dislike being poked, prodded, or stuck with needles even more than they detest visiting their physicians.

A few other reasons some men and women balk at the steps required to obtain term or whole life insurance: they simply don’t have time for the required exam, or they can’t wait a few weeks for approval.

Some folks “just don't enjoy visiting a doctor,” says David Bakke, the insurance expert at MoneyCrashers.com. “And some just do not want to be made aware of any potential health issues they might be suffering from, as detrimental as that may sound.”

In the experience of Jeff Root, owner of Rootfin Life Insurance Agency in Austin, Texas, a lot of people “don't want the hassle of having a nurse come by to stick them with a needle, then wait four to six weeks for a decision.”

And then there are those who don’t have a problem with the process mentioned earlier but aren’t willing or able to go through it again because they’ve already been turned down by every other insurance company.

A Brief Introduction to No-Exam Life Insurance

If one or more of the situations mentioned earlier sound familiar, you may want to consider purchasing what is often referred to as “no-exam” life insurance.

What is no-exam life insurance, you ask? Basically, it’s a form of life insurance that provides a certain amount of protection and coverage to a person without requiring him or her to first be examined by a medical professional.

That’s just the gist of it, though. A more thorough description of or discussion about this type of life insurance will tell you that there are many different kinds of no-exam policies. “Simplified issue” and “guaranteed issue” are the most common. (Graded death benefit and final expense plans also are included under the no-exam umbrella. The former is similar to and cheaper than guaranteed issue. The latter are relatively small whole-life insurance plans that are supposed to help survivors deal with various expenses that follow in the wake of the policyholder passing away.)

A physical exam isn't required before your application for these forms of life insurance. But that doesn’t mean your name, contact information, and a payment is all you need to send for coverage.

Simplified Issue Life Insurance Basics (Plus Some Pros and Cons)

When it comes to simplified issue life insurance, for example, you’ll have to answer a small handful of personal questions before a company will extend a quote to you. In most cases, that'll mean letting the insurer know whether or not you:

Are a smoker
Currently live in some sort of long-term-care institution
Have HIV or AIDS
Have been declared terminally ill.

It also may mean sharing information related to whether or not you have heart or kidney disease, or you’ve had cancer or a stroke.

Plus, according to Root, many of the insurance providers you approach will want to review any or all of the following:

Your MIB (Medical Information Bureau) report
Your pharmacy report
our motor vehicle report.

How you respond will determine if your application is accepted or declined. If it’s approved, this information also will determine the cost of your premium.

If you share that you're living in a long-term-care facility, or if you reveal that you’ve been diagnosed as having HIV or AIDS, or you’ve been declared terminally ill, you’ll probably be denied coverage.

“Most no-exam insurance companies will automatically decline anyone who is diabetic or has a history of heart disease or any circulatory disorders,” says Cliff Pendell, a managing partner with JRC Insurance Group in San Diego, California.

These sorts of polices also “cannot be purchased for someone who is in a nursing home, assisted living facility, or on hospice, regardless of any power of attorney privileges,” he adds. Nor can they be purchased “for anyone with documented dementia or Alzheimer's [disease] in their medical records.”

If you admit to smoking, on the other hand, you’ll likely still be approved, although that habit is sure to raise your premiums to some extent.

Speaking of premiums, the ones that are attached to simplified issue life insurance policies usually are quite a bit higher than the ones attached to more conventional life insurance policies. In fact, it isn’t unusual for the former to be two to four times higher than the latter.

“Anyone whose main objective is finding the lowest cost policy should stay away from no-exam life insurance,” Root stresses.

That’s not the only downside to going with simplified issue life insurance rather than a type that requires a medical exam, unfortunately. Another is that the coverage amounts and options offered tend to be lower and more limited than life insurance plans tied to a medical examination. A simplified policy’s “death benefit” often ranges from $25,000 to $1 million or even more. And the lower end of that range is more common than the higher end.

The full value of that so-called death benefit is made available to policyholders right from the get-go. That can’t be said for the death benefit that comes along with guaranteed issue life insurance plans.

Pros and Cons of Guaranteed Issue Life Insurance

Just like simplified issue life insurance, guaranteed issue life insurance can be obtained without first meeting with a doctor.

Unlike simplified life insurance, though, guaranteed issue life insurance doesn’t always force applicants to answer a bunch of health- and medical-related questions before their policy can be approved.

Even when those kinds of questions are required for you to be granted a guaranteed issue life insurance policy, though, you’ll probably only have to answer three or four of them. (Basically, the first few that were mentioned above.)

In other cases, though, all you’ll have to do to acquire some amount of guaranteed life coverage is pay the premium that is quoted to you.

So, what drawbacks follow in the wake of all of this straightforward simplicity? One example is that guaranteed policies can be pricey—as in, “the most expensive of all life insurance policies in existence” pricey.

Also, the death benefit amounts that are linked to this kind of life insurance are even lower than those linked to simplified plans. In fact, some guaranteed policies offer as little as $5,000 of coverage, while the upper range of coverage is around $100,000.

Another negative is that death benefits often are “graded.” This means that if you die within the first two or three years of taking out a policy, your survivors will only receive a portion of the payout. In some cases they’ll just be refunded the premiums that you had paid up to that point.

There is a reason guaranteed issue life insurance is as pricey as it is and only offers such limited coverage options. The insurers that support this type of policy are taking on added risk by bringing on customers who have shared little or no information about their health and medical histories. So they make up for that by pricing these plans higher than plans that require an exam.

People often “assume that they'll save money on buying a no-exam policy if they have a few health issues. But the insurance companies have adjusted for this by charging 30 to 60 percent more,” Pendell shares.

As a result, most experts consider guaranteed issue life insurance—and simplified life insurance, too, to an extent—to be “last resort” policies. So, if you’ve been denied by every insurance company and you need this type of protection, a guaranteed plan may be for you.

If you’re young and relatively healthy, though, you probably should examine the other, far more affordable, options that are sure to be available to you in the life-insurance realm.

A Few More Details Related to No-Exam Life Insurance

Whether you decide to buy a simplified or guaranteed policy, the more coverage you choose, the higher your premiums are going to be. Admittedly, that’s true of pretty much every other form of insurance in existence, too, but it’s especially noteworthy here thanks to the increased expense of this particular insurance product.

On a related note, it’s possible your access to various riders or endorsements may be more limited when you buy a guaranteed or simplified policy than if you bought a more conventional life policy.

Also, the older you're when you go to buy no-exam life insurance, the more you’re likely to pay for it. The amount of coverage you’re able to qualify for may be impacted by your age as well.

Many insurers only offer guaranteed life insurance policies to people who are in their mid-40s to mid-80s. If you’re outside of that range, you may have to opt for a simplified plan or some other form of life insurance.

But there’s no denying that a number of advantages and benefits are associated with this form of life insurance. One is that a medical exam doesn’t have to be completed before an application is approved. But another, according to Toby Bloom, a licensed health and life agent and the CEO of Integrity Insurance in New Mexico, is that “the underwriting is much broader allowing for more people to be approved and [for policies to be] issued faster.”

And Now, for a Bit of Advice

If you’re healthy, you should investigate other life-insurance options. “People who know they're in generally good health--with regular visits to the doctor--probably should stay away from [no-exam life insurance] policies. Mainly because of the cost factor,” Bakke suggests.

Don’t lie on your questionnaire. Assuming an insurance provider asks you to answer a few health or medical questions before they’ll issue you one of these policies, be honest in your responses.

Most insurance companies these days review all sorts of publicly available information to verify the details included in your application.

If you forget or fail to disclose some kind of medical issue or condition at this point in the process, they’re probably going to find out about it. And it’s quite possible they’ll cancel your policy if the infraction is considered serious enough.

Shop around. No-exam life insurance may be expensive, but that doesn’t mean all no-exam policies are sure to be equally expensive.

As a result, you’ll be well served by contacting a number of companies and comparing the quotes they send your way before you decide to go with one offer over another.

Read the fine print. To put this suggestion another way: be sure to carefully read through any forms or documents that an insurer sends your way before you sign on the proverbial dotted line.

Specifically, make sure the information that’s covered in a particular policy’s conditions, eligibility requirements, and other terms are in line with your life insurance needs and wants.

Start with simplified and then turn to guaranteed if the need arises. One strategy that’s often passed along by experts in this area is to begin by applying for simplified issue life insurance and then apply for guaranteed issue if you’re turned down for the former.

That’s because simplified tends to be less expensive than guaranteed, so why not try to obtain the cheaper option before going for the pricier one?

Also, some experts recommend purchasing some form of no-exam life insurance before you go to apply for a more traditional plan. That way, if something comes up during your medical exam that keeps you from being approved, you’ll still be protected. And if you pass the examination with flying colors, you can cancel the no-exam policy and keep the traditional one in force.

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No-Exam Life Insurance Pros and Cons