As with getting married, buying a home, or having children, purchasing life insurance is one of those landmark moments that seem to announce you’ve “arrived” at adulthood. Truth is, if you have any of the above — a spouse, a house, or a family — life insurance is an important tool to help you and the people you love have greater financial security.
While there are multiple types of life insurance policies, they all work in generally the same way. You pay a premium to an insurance company. Then, if you die while the policy is in effect, the insurance company pays an amount of money called a “death benefit” to the people you’ve identified as beneficiaries (typically your spouse and children, or any other dependents) on the policy.
The dollar amount of that death benefit is something you agree to when you buy the policy; the higher the death benefit, the more you can expect to pay in premium. It’s intended to help your beneficiaries pay off any of the debts you might have assumed during life — a home mortgage, for example. It can also help with major expenses, such as your kids’ college tuition.
The life insurance medical exam
Why is there a medical exam? Well, from an insurance company’s perspective, the more they know about whom or what they’re insuring, the more accurately they can underwrite the policy (assess their own financial risk, and charge an appropriate premium). So when you buy car insurance, for example, the insurer asks you about the year, make, and model of your vehicle; they look at your driving record; and so on. An important step for life insurance underwriting, therefore, is having you do a medical exam. The information the insurer gets from the exam helps them understand if you have any underlying health issues that might put you at greater risk for an early death.
A life insurance medical exam is usually neither invasive nor time intensive. It can often be done in your home or office by a medical professional employed by the insurer in about a half an hour. The exam may require a blood draw; collection of a urine sample; a check of your height, weight and vitals; and possibly an electrocardiogram.
Again, however, many life insurance buyers — maybe you — don’t want to have this done. The good news is that you have some options.
What is no-medical-exam life insurance?
No-medical-exam life insurance is an option that allows you to buy a policy without having that medical exam. Instead, the insurance company may ask you to do a much simpler questionnaire — usually over the phone — about your health, while relying on your medical records (prescription history and doctor’s records, for instance) to inform their underwriting assessment. There are multiple types of no-medical-exam life insurance policies, which we’ll review below. Most are available as either term-life policies (policies that are in force for a set term, say 20 years), or whole-life policies (policies that stay in force for the rest of the policyholder’s life).
Now, for the caveats.
Without that medical exam, the insurance company can’t underwrite quite as accurately. So you may be charged a higher premium. The maximum amount of your death benefit may also be somewhat limited — perhaps less than what your family needs should you suddenly pass away. Depending on the type of policy, there may be other restrictions as well.
Types of no-medical-exam life insurance
Let’s look at four types of no-medical exam life insurance, including their pros and cons.
Guaranteed-issue life insurance
Guaranteed-issue policies are marketed to older people to help their families cover any final expenses, such as funeral costs. As such, they often have a small maximum death benefit — typically no more than $25,000. That death benefit is also graded, meaning the full amount won’t be paid if the death occurs during the first few years after purchase.
As the label implies, underwriting approval is guaranteed if you’re within the insurance company’s eligible age range, such as 45 to 85.
Pros: Guaranteed acceptance. No medical exam.
Cons: Limited death benefit. Graded death benefit.
Ideal if: You’re older and are looking for insurance to help spare your family the need to pay out-of-pocket for a funeral and other final expenses.
Simplified-issue life insurance
Simplified-issue policies are designed to provide life insurance very quickly. In fact, most people who apply for a simplified life insurance policy can get their policy immediately upon acceptance of the application. Available death benefits are higher than those for guaranteed issue policies — up to $500,000.
Pros: Coverage immediately upon acceptance of the application.
Cons: Acceptance is not guaranteed.
Ideal if: You want or need coverage quickly, and need higher death benefits than what’s available with a guaranteed issue policy.
Instant-approval life insurance
Instant-approval life insurance uses something called accelerated underwriting to help the insurer calculate the premium. This means the company uses sophisticated algorithms to review your medical history. The result is that the insurer can be more confident in the level of financial risk you present the company, provide a more accurate (potentially lower) rate and a higher death benefit. Available death benefit amounts vary by insurance company, but can go up to $2 million.
Pros: More accurate pricing. Higher death benefits available.
Cons: Coverage is not guaranteed.
Ideal if: You want or need a quick application process, and are looking for higher death benefits.
Group life insurance
Group life is offered by many large employers as a perk of employment. For these policies, the insurance company underwrites the group of participating employees as a whole, instead of each person as an individual. Many employers pay all or part of the premium for a basic level of coverage, while giving you the option of paying for additional coverage.
Pros: A no- or low-cost option, with the ability to pay for higher death benefits.
Cons: Available death benefit amounts tend to be quite low — usually just one or two times your annual salary.
Ideal if: You have simpler life insurance needs (you’re single, for example) and don’t want to pay for coverage. Group insurance can also be a good option if you’re looking to supplement an individual policy.
How to find the best no-medical-exam life insurance company
Any time you buy insurance — whether it’s for a car, home, or your life — it’s a smart idea to do a little research on the insurer. After all, you’re entrusting the company with your and your family’s financial security. Getting a rock-bottom premium does you no good if the company isn’t able to pay your death benefit should the unthinkable happen. In general, it’s a good idea to stick with established, reputable companies — names you know.
You can also do a little research into a company’s financial stability by looking at its third-party ratings. There are multiple, independent rating agencies that review and rate life insurance companies. These ratings typically come in the form of a letter grade.
One of the best known rating agencies for insurance companies is A.M. Best. According to its website, A.M. Best claims it assesses more than 16,000 insurance companies worldwide, to “…summarize our opinion on an insurance company’s ability to pay claims, debts and other financial obligations in a timely manner.”
A.M. Best grades companies on a scale of A++ to F. So look for this rating on the website or marketing material of any life insurance company you’re considering. Other rating companies include Fitch, Moody’s, and Standard & Poor’s.
Insurance companies are also the frequent subject of consumer-focused reviews. The consumer insight firm J.D. Power, for instance, publishes an annual study of life insurers. Such reviews can be very helpful when deciding on an insurer.
Is no-medical-exam life insurance right for you?
In many ways, life insurance is like any other form of insurance. It’s intended to keep you and your family in a secure financial position should the unthinkable happen. It helps you sleep comfortably at night.
When deciding what type of insurance policy is the right one for you, you really need to think with that end in mind. Ask yourself, “will the policy I’m buying really meet my family’s needs?” If a no-medical-exam life insurance policy can do that for you, then perhaps it’s the one you need. If you need a better combination of price and coverage, you may want to explore policies that require an exam.
It’s always a good idea to discuss your needs with a life insurance agent. Agents are licensed by your state, and trained to know the ins and outs of the policies they sell. They’ve dedicated their careers to listening carefully to their clients, and matching them with the insurance products that meet their needs.