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Simplified-issue life insurance: What you need to know

By Posted : December 4, 2018

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.

This makes the process quicker and painless. However, it's not open to everyone. If you have any health issues or if you're not young, an insurer will likely not allow you 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.

Unlike whole life, or permanent life insurance, term coverage lasts only for an agreed-upon period, such as five, 10, or even 20 years. Term life policies are usually in effect during a person's peak income years. These policies are meant to replace your income and help your survivors pay your mortgage, bills and final expenses if the unthinkable happens. 

How is simplified-issue term life insurance different?

Insurers want to know a lot about you, especially your life expectancy, before you can purchase most types of term or whole life insurance coverage. Besides completing 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. 

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.

Currently, just a few companies offer this type of policy. It's 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 to buy simplified-issue term life insurance

Major insurers, such as MetLife, sell simplified-issue term life insurance policies online or by phone, and a Prudential policy can be bought at many banks. Other insurers, like Amica, offer simplified-issue whole life insurance, which covers you for life unlike term, which covers you for a specific number of years. 

"Big box" stores like Wal-Mart may also sell simplified-issue term life insurance. You could ask an insurance agent for advice, but he or she will probably tell you to buy it directly from the insurance company.

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.

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.

Most insurance companies allow you to pay monthly, semi-annually or yearly through automatic deductions from your checking account or debit card.

In most instances, you'll get full coverage immediately upon acceptance, unlike some other policies where full coverage is phased in over five years.

Advantages, disadvantages of simplified-issue term life

Simplified-issue term life is an option for people who are healthy. However, unlike other types of life insurance, you don't have many options. Plus, it can be pricey. 

Here are three 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.

Here are two disadvantages:

  • Limited offerings. These policies don't offer many (or in some cases any) riders, such as add-on coverage for spouses and children. 
  • 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.

No matter what type of simplified-issue term life insurance policy you buy, make sure you shop around. Get quotes from multiple insurers and choose the option that works for you. 

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