What is simplified-issue term life insurance?
Simplified-issue term life insurance has a very simple premise: no medical exam and an application with few questions that's quick and easy to answer.
How does simplified-issue term life insurance differ from other types of term or whole life insurance?
Insurers want to know a lot about you, especially your life expectancy, before you're approved to purchase most types of term or whole life insurance coverage. Besides filling out a detailed questionnaire, most carriers require a medical technician to come to your home or office and take blood and urine samples, check heartbeat and blood pressure, and conduct the same type of tests you'd be given during an annual physical.
There is, however, an emerging trend: so-called instant-issue term life policies that you can buy without having a medical exam. Insurers rely on algorithms and data bases to assess your health, rather than an exam. You simply fill out an application online. Currently, just a few companies offer this type of policy, and it targeted at younger, healthier people. But if you qualify, you can get coverage similar to standard term policies without the wait and paperwork. That differs from simplified-issue term policies that have higher costs and limited coverage.
How does an insurer find out about me without a medical exam?
Simplified-issue term life insurance uses current statistics to predict how long you'll live based on your age and sex at the time you purchase the policy.
How do I buy it?
Major insurers, such as MetLife, TransAmerica and Amica, sell simplified-issue term life insurance policies online or by phone, and a Prudential policy can be bought at many banks. "Big box" stores like Wal-Mart may also sell this type of coverage. You could ask an insurance agent for advice, but he or she will probably tell you to buy it directly from the insurance company.
How much coverage can I get?
Simplified-issue term life insurance policies can be bought in increments ranging from $5,000 to $100,000 or more of coverage. Insurers want people to purchase policies when they are young and to increase coverage as their income and assets grow.
How long does the coverage last?
Unlike whole life, or permanent life insurance, term coverage lasts only for an agreed-upon period, such as five, 10, or even 20 years.
How much will it cost?
Simplified-issue term life insurance policies cost more than traditional term life insurance for the amount of coverage you get. That's because the insurer doesn't know as much about your health as it would if you had a medical exam and had filled out a more detailed questionnaire. Like most life insurance, premiums depend on your age when the policy is purchased. A Prudential policy costs about $3 more per month for younger people than a traditional policy.
How can I pay for it?
Most insurance companies allow you to pay monthly, semi-annually or yearly through automatic deductions from your checking account or debit card.
Can anyone buy it?
Not everyone can purchase simplified-issue term life insurance. Even simplified policies require you to answer "knockout" questions, such as whether you're in a wheelchair, have a disability, or have been diagnosed with a serious disease such as cancer or diabetes. Your application also gives an insurer the right to check up on you in medical databases and view other records to verify that you're being truthful.
Is there a waiting period for full coverage to take effect?
In most instances, you'll get full coverage immediately upon acceptance, unlike some other policies where full coverage is phased in over five years.
Isn't this similar to the group life insurance policy offered by my employer that also requires no medical exam?
Yes, but remember that if you leave your job you forfeit your coverage, unless you will have a policy with your new employer.
What are the advantages?
- Convenience. You don't have to worry about or wait to have a medical exam. The application is easy to fill out and about two-thirds of those applicants are approved, according to Prudential.
- Availability. Coverage can begin at age 18, and some insurers offer policies until age 90 or even 120. The small coverage amounts – starting at $5,000 – are inexpensive enough that even low-income workers purchase a policy.
- Privacy. No one comes to your home or office.
What are the disadvantages?
- Limited offerings. These policies don't offer many (or in some cases any) riders, such as add-on coverage for spouses and children. MetLife offers an accidental death and dismemberment rider for an additional cost.
- Price. These policies cost more for the amount of coverage. But as major carriers compete in this growing market, the price is likely to drop. Prudential predicts that simplified-issue and regular term life insurance will someday be the same price and it will take only 15 minutes to purchase a policy.