No exam life insurance: Pros and cons

Adelicia Caree

(CNN) —   When it comes to life insurance, both you and your life insurance company are basically making a business wager. Your side of the bet is that the total you’ll pay in premiums during the life of the policy will be lower than the benefit your family receives […]

(CNN) —  

When it comes to life insurance, both you and your life insurance company are basically making a business wager. Your side of the bet is that the total you’ll pay in premiums during the life of the policy will be lower than the benefit your family receives if you die while your policy is in force. Yet the life insurance company is betting the reverse — that you’ll pay more in premiums and fees than it’ll have to pay out at the end, or that your policy will expire before you die so no benefit ends up being paid at all.

So it’s not a surprise that most life insurance providers won’t enter into this agreement without more information on your overall health. Because if you’re already sick or have a life-threatening condition, the policy is more likely to end up costing the company money instead of turning a profit. As a result, life insurers usually ask customers to go through a basic medical exam before they can be approved.

But there are, in fact, certain types of life insurance policies that don’t require a medical exam. They’re colloquially known as “no exam life insurance” and they have the potential to cover you if you either can’t qualify for a traditional life insurance policy with a medical exam or if you’d just prefer the convenience of not having to take an exam.

A traditional medical exam for life insurance usually requires measurements of your height and weight, your blood pressure, blood and urine samples and so on. However, because a life insurance company is taking a larger gamble on insuring someone without the use of a medical exam, rates for no exam life insurance are typically higher than standard term life insurance.

But premiums for term life coverage tend to be on the low side already, so the amount of life insurance you need may still be affordable even without a medical exam.

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iStock

Younger people may be able to get no exam life insurance policies that are relatively afforable.

Generally speaking, no exam life insurance can be a good option for:

  • Young people.
  • People who are willing to pay higher premiums to avoid a medical exam.
  • Consumers who only need life insurance coverage at lower limits than they might otherwise be able to obtain with an exam.

As an example of that last point, medically underwritten term life insurance from Haven Life is offered in amounts up to $1 million. But if you purchase a simplified issue policy from the same company (meaning no medical exam is required), your death benefit is limited to $500,000.

Interestingly, new technology has made it possible for more and more companies to offer life insurance policies with no medical exam required. These companies use advanced algorithms and statistics to determine if you’re a suitable candidate for a no exam policy.

So even in our Haven Life example, the medically underwritten policy doesn’t always require an actual medical exam. Depending on your answers to the health questions in the insurer’s application, you might be approved for a standard policy without needing to actually show up in a doctor’s office. That’s why it’s probably worth checking on your eligibility for regular term life insurance first before turning to no exam options.

Even if you have to get no exam life insurance (or just prefer to), the costs can be reasonable. For instance, a 31-year-old woman in excellent health who applies for a 20-year term policy with $500,000 in coverage through Bestow (a term life provider who only offers no exam coverage) can pay as little as $19.58 per month.

While many people think of no exam life insurance as an option only for the young and healthy, there’s another type of life insurance with no medical exam that’s geared toward the older population. Guaranteed issue life insurance is a type of whole life insurance that’s guaranteed to be issued, regardless of health. This means there’s no medical underwriting required, and thus no medical exam.

Older people might consider guaranteed issue life insurance, a type of whole life insurance with no medical exam.

PHOTO:
iStock

Older people might consider guaranteed issue life insurance, a type of whole life insurance with no medical exam.

Guaranteed issue life insurance can be a good option for:

  • Older people in fair or poor health who want to leave behind cash to pay for their final expenses.
  • Anyone with health conditions that would prevent them from being eligible for a traditional life insurance policy.
  • People who are willing to accept a smaller death benefit and more fine print in exchange for not having to endure a medical exam.

Most guaranteed issue life insurance policies are intended to pay for final expenses. This means the death benefit for guaranteed issue policies is typically much lower than you’ll find with most traditional life insurance plans.

Guaranteed issue life insurance also requires relatively high premiums in relation to the death benefit, which makes sense since these policies are geared toward older people with existing health conditions. As an example, a 65-year-old woman who applies for a RAPIDecision Guaranteed Issue policy from Fidelity Life would have to pay $55.65 per month for a final expense policy with a $10,000 death benefit.

That’s a lot to pay for a fairly small amount of coverage. In fact, if that 65-year-old woman lived for 15 more years to age 80, she would wind up paying enough in premiums to cover the entire $10,000 death benefit. And for every month she lived beyond age 80, she’d pay more than her family would end up getting at the end.

Also, keep in mind that guaranteed issue policies sometimes offer a graded death benefit that changes over time. In these cases, if you die within a few years of your policy being issued, your beneficiaries may only receive back the premiums you paid, or a premium refund plus a percentage added.

If you’re in excellent health, regular term life and whole life insurance policies are usually a better choice than no exam life insurance. Even though it’s a hassle, by agreeing to an exam, you have the potential to qualify for a medically underwritten policy with rates and terms that are based on your overall health and life expectancy. And if your health is good, that’s great news.

But no exam life insurance can be the answer for young people in excellent health or older people who just want coverage for final expenses. Of course, it’s always smart to weigh the pros and cons of opting for no exam coverage over a medically underwritten policy if you can qualify.

Make sure to think over your needs and goals and conduct your due diligence before you settle on any life insurance policy. Your beneficiaries are counting on you to make the right choice, so make sure any decision you make is an informed one.

Not sure if no exam life insurance is right for you? Read CNN Underscored’s guide to the different types of life insurance.

Get all the latest personal finance deals, news and advice at CNN Underscored Money.

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