One of the greatest hindrances associated with purchasing life insurance coverage is the medical exam that is required for most consumers. The medical exam required by traditional life insurance policies determines whether an applicant is eligible for coverage and if so, how much the premium will cost the consumer. Fortunately, there exist two types of life insurance policies that do not require a medical examination – Simplified Issue and Guaranteed Issue life insurance. This article will evaluate the strengths and weaknesses of each, as well as their differences.
Simplified Issue Life Insurance
This is the preferred life insurance policy due to the fact that you answer a few questions regarding your medical history without undergoing a medical examination and it’s comparable to most life insurance products.
Typical Health Related Questions asked for Simplified Issue Life Insurance
It is customary for the consumer to be asked four or more medical related questions in order to provide an appropriate Simplified Issue Life Insurance quote. The answers given will determine eligibility, as well as premium cost. Such questions include the following:
- Do you smoke?
- Do you currently reside in a hospital or extended care facility?
- Have you been diagnosed terminally ill?
- Have you been diagnosed with HIV or AIDS?
If you, as the consumer, answer “No” to the previous questions, then you can expect eligibility. If you indicate “yes” that you smoke, you may still be eligible for a Simplified Issue policy, but it will be more expensive. However, if you answer “yes” to questions 2-4, you will not be offered a Simplified Issue Life Insurance policy and may need to consider a Guaranteed Issue Life Insurance policy, which we will discuss further.
The above-mentioned questions are an example of the types of underwriting questions that are asked by most insurance companies. Some companies may ask a few more questions, but in the end, the term “simplified” means that you will answer fewer medical questions and experience fewer invasive exams when compared to standard life insurance. Now, let’s examine the benefits compared to the risks associated with the Simplified Issue Life Insurance policy.
- No medical examination required to determine eligibility
- Receive coverage within weeks rather than months, as with other insurance policies
- “Death Benefit” or face value is immediately available upon policy issuance
- Costs less than a Guaranteed Issue Life Insurance policy
- Higher premiums – often in excess of 2-4 times higher than standard life insurance policies
Guaranteed Issue Life Insurance
A Guaranteed Issue Life Insurance policy is similar to a Simplified Issue Insurance policy due to the fact that there is no required medical examination. Furthermore, there are no medical questions to answer. Just as the name suggests, if you pay the premium cost the insurance provider “guarantees” you an issuance of a policy.
The major disadvantage of the Guaranteed Issue policy is that the full death benefits are not available until one to two years after the policy has been enforced, which is termed graded benefits. In some instances, the beneficiaries will only receive the premium amounts paid up until death if the insured dies within 2-3 years of purchasing the policy. Additionally, some companies give only a percentage of the death benefit. Beneficiaries will not receive the full death benefit unless the death is accidental.
- No medical examination required or medical questions to answer
- Guaranteed coverage
- Graded benefits – beneficiaries will receive refunded premiums paid rather than the full death benefit if the insured dies during a specified time from the start of coverage.
- Most expensive life insurance that can be purchased
Facts to Consider
- Policies are smaller in benefit amount and designed to pay for funeral expenses
- Offered typically to those 45-85 years of age
- Guaranteed Issue Life Insurance is typically a last resort due to ineligibility or higher premiums elsewhere
- Offers smaller death benefits ($5,000-$100,000) compared to other traditional policies
- Life insurance provider is unaware of how healthy you are and is, therefore, more expensive.
The Decision at Hand
Individuals 45-85 years of age possessing health issues generally choose Guaranteed Issue and Simplified Issue Life Insurance. It is important that you obtain a quote for it costs nothing and can only further inform you of the appropriate decision. A positive strategy to consider is to apply for a Simplified Issue Life Insurance policy first since it is customarily less expensive than your other options.
In the event that you are denied coverage by a Simplified Issue policy, you can then purchase a Guaranteed Issue policy. It is always a good practice to discuss coverage in person with a licensed life insurance agent. Life insurance policies can be rather perplexing, so it is better to discuss coverage live rather than through email. This will ensure that all of your questions are answered appropriately and that you have a full understanding of the policy’s terms before the policy is enforced.