Life Insurance No Medical

Because life-insurance companies assume the mortality risk of the lives they insure, they often request that applicants undergo a medical exam. The purpose of the exam is to uncover health threats that were heretofore undetected, hence not present in medical records.

It has become increasingly common to waive the medical exam. This is popular with applicants, who avoid the time and trouble of the exam. It is less clear why insurance companies voluntarily drop the medical exams. As it turns out, the answer lies with the two distinctly different classes of customers who enjoy “life insurance no medical” status.

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Quick-Issue Life Insurance

There has been a recent surge in advertisements and offers for “life insurance no medical.” This is attributable to a product called “quick-issue” life insurance. The product itself is not new. The youngest and healthiest adults have long had the privilege of applying for life insurance by answering a series of medical questions rather than having to undergo a medical exam. Favorable answers to the questions can get a life-insurance policy accepted and issued very quickly – perhaps within minutes on the Internet, or at most within a few days.

Quick-issue insurance has exploded in popularity because of two revolutionary developments: the ease of information exchange over the Internet and the elevation of public awareness of and access to health-care information. Steady increases in life expectancy are the clearest sign of a new public resolve to take an active individual role in health care. Of course, technological improvements in health care have improved longevity, but public attitudes have increased the demand for health-giving innovations.

An interesting side effect of increased life expectancy has been a reduction in the discovery benefits of life-insurance medical exams. The exam is costly to the insurance company as well as to the applicant. It is only worthwhile if enough new information about health risks is uncovered to offset the costs of the examination. With improvements in public health, there is less new information available to be unearthed. Insurance companies have reacted by increasing the age range of applicants for whom the medical exam is waived. Meanwhile, increases in health-care prices have made the medical exam more costly. When the benefits of an activity decrease and its costs increase, people do less of it.

Waiver of the medical exam does not mean that life insurance companies take no interest in the health of applicants. Applicants are asked questions about their health history and current status. Questions zero in on the most common serious health conditions and symptoms. The applicant is asked whether he or she, or some member of the family, has ever suffered from cancer, heart disease, diabetes or diseases of the lung, liver, kidney, blood vessels, nose, throat, eyes, ears, mouth, bones, muscles or joints. Queries about “mental illness” are common. (We have learned that diseases formerly ascribed to psychological factors have physiological sources.) Symptoms of interest include shortness of breath, spitting up blood, cysts and tumors. The most scrutinized behavior is smoking. Personal data such as age, height and weight are considered.  Hospitalizations and associated diagnoses are investigated. Contact information for the applicant’s personal physician is obtained. Favorable answers to the questions can get a policy issued in minutes over the Internet or within a few days otherwise.

A follow-up search of personal health records makes the likelihood of successful fraud remote. The tradeoff accepted by the insurance company is the occasional failure to uncover a hitherto-unknown medical condition.

Most quick-issue policies are term insurance. The healthiest people are the youngest, and these are apt to prefer term insurance to whole life. The two most frequent policy limitations are $250,000 and $500,000.

Guaranteed Issue Life Insurance

The second class of beneficiaries from the popularity of “life insurance no medical” are purchasers of guaranteed issue life insurance. As the name implies, this form of life insurance guarantees issuance of a life insurance policy to the applicant. Two sub-classes of buyers avail themselves of guaranteed issue policies.  First are older people who want to acquire life insurance to pay their final expenses and perhaps leave a small legacy to loved ones. Second come people of any age who have pre-existing health conditions that would otherwise deny them insurance coverage entirely.

Each of these sub-classes consists of people who either cannot obtain standard life insurance of cannot afford it. Yet guaranteed issue life insurance not only issues policies for them but does so sight unseen, without even requiring applicants to take a medical exam.

The apparent paradox is resolved by special features of guaranteed issue medical. Policies are limited to either $25,000 or $50,000, which limits the risk of any one policy to the insurance company.  They are whole-life insurance, which is necessitated by the uncertainty about the date of death. The high whole-life premiums serve to collect enough revenue to offset the higher-than-normal mortality risk displayed by both groups. Gradation of benefits – the postponement of full benefit vesting until year 2 or 3 of the policy – further limits risk borne by the insurance companies. Finally, pooling of high-risk applicants insures that all or most of the high-risk applicants do not die at once.

A simple way of describing the guaranteed-issue philosophy is to say that everything has a price. People who could not obtain or afford standard whole-life insurance can get money for final expenses or a small legacy. The price is felt not only in the high premiums charged but in the small face values of the policies.

Summary

“Life insurance no medical” is a tag affixed to two different types of life insurance sold to two very different classes of customers. Practically the only thing the customers or the insurance have in common is that medical exams are waived in both cases. Purchasers of quick-issue life insurance use their relative youth and good health to avoid the medical exam. Term insurance is well-suited to their circumstances.

Buyers of guaranteed issue life insurance use whole-life policies as a posthumous source of funds for liquidating final expenses and leaving a legacy. Policyholders would normally be unable to get life insurance due to their age or pre-exiting medical conditions. By paying high premium rates, they get relatively small amounts of life insurance. This is more life insurance than they would otherwise get.

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