The ins and outs of no-exam life insurance

If you’re looking at buying life insurance, one of the first questions to arise may be this: Do I need to undergo a medical exam to buy a policy? The answer: Not necessarily.

More often than not, purchasing whole, universal or term life insurance means going through a medical exam to determine insurability and premium rates. According to the LIMRA trade group, the two most common types of life insurance exams are paramedical and full medical.

Policies that require a paramedical exam ask the applicant to provide a full health history as well as undergo an exam from a trained technician who will measure height, weight, blood pressure and pulse. In most cases, applicants also will submit to blood and urine tests.

In the case of a full medical policy, a physician will complete the exam, which typically comprises the same elements as a paramedical exam in addition to listening to the heart and review of other parts of the body. Some companies might even require that the physician be a board-certified internist or heart specialist rather than a general practitioner.

Eliminating the fear factor

There are, however, several life insurance options that do not require an exhaustive medical history or exam. According to LIMRA spokeswoman Catherine Theroux, no-exam (sometimes called express) life insurance can be categorized three ways: guaranteed issue, simplified issue and non-medical underwriting:

Guaranteed-issue policies do not require any underwriting. No health questions or medical exams are required, and those who apply and meet specified conditions are issued a policy automatically.

Simplified-issue policies require no medical or paramedical exam, but a limited number of health-related questions are asked.

Non-medical underwriting policies require no exam but do collect an applicant's full health history.

life insurance no exam

These types of policies aren't new, but they are growing in popularity, says Andy Hutchinson, a vice president at Mutual of Omaha, which offers several types of no-exam policies. According to Hutchinson, most life insurance applicants are interested in no-exam policies for three reasons: speed, negative health history and fear.

With an underwritten life insurance policy, applicants typically wait between four to six weeks to find out whether they’ve been approved. No-exam policies eliminate this lengthy and oftentimes complicated step, usually resulting in an issued policy within days of submitting the application.

“I think it’s often a matter of convenience,” Hutchinson says. “The underwriting process can get very complicated, and a lot of people are like, ‘Look, I think I’m fairly healthy. Let’s get me covered today."

For those who are not so healthy, no-exam life insurance may be the only option. Health complications such as a heart attack within the past two years -- usually combined with an advanced age -- often mean an applicant is uninsurable. While applicants still will be denied for serious conditions like cancer, HIV or diabetes, no-exam policies sometimes can offer coverage for those who can’t find it elsewhere.

“The face amount will be a lot lower if you have a pre-existing condition, but at least it’s some coverage,” Hutchinson says. “You’re probably looking at a $25,000 face amount and lower when you have those negative health histories -- but at least it’s something.”

Finally, the third reason someone might opt for a no-exam policy is because, frankly, they’re afraid of needles.

“For a healthy person, the only real benefit of these types of policies is that some people are afraid to do the exam,” says Kim Reed, a life insurance specialist with Agency Services Inc. “Either they’re afraid of what might be found there or they just don’t like the idea of a needle drawing blood samples.”

No-exam policies not for everyone

Reed cautions, however, that no-exam policies are not for everyone.

First of all, the policy itself is usually rather small. Some companies, like Mutual of Omaha, will cover a person for up to $250,000, but more often these policies fall between $10,000 and $50,000 in face value.

Secondly, no-exam policies are considerably more expensive than conventional, underwritten policies. Reed says the price tag will be at least 50 percent higher.

“But people who can’t find it anywhere else are willing to pay that,” Reed says. “Insurance companies aren’t trying to gouge people with health problems; they’re simply taking risks that are exorbitant.”

Jean Lemaire, professor of insurance and risk management at the University of Pennsylvania, says no-exam policies should be considered only in extreme cases.

“I have read that these policies can sometimes be seven times more expensive than fully underwritten policies,” Lemaire says. “Only (people with) the worst risks should even consider buying no-exam insurance.”

Regardless, Mutual of Omaha's Hutchinson expects no-exam policies to grow, both in popularity and payouts.

“Companies are taking this to a new level, and can now tap into the Medical Information Bureau, where they will search to see if an applicant’s been rejected for coverage before, as well as look into their pharmaceutical history,” Hutchinson says. “This technology has really opened up the flow of information available to insurance carriers. Perhaps it’s a little like Big Brother, but at the same time it will allow the face amounts of these 'express' products to grow.”

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