You see it on TV. No medical exam insurance. No agent will call. Less than a cup of coffee a day. No burdensome medical exam. Happy, well insured people!
Surely it can’t be that easy though, is it? If you can get life insurance with no medical exam, why would anyone bother? Why would a broker ever recommend anything but no medical exam life insurance?
Part of the answer lies in the quick voice over you’ll hear at the end of these commercials – “limited benefits in the first two years”. Wait, what? What the heck does that mean? I’ll explain that and other ‘gotcha’s’ below.
Another point to note is that no medical exam does not mean guaranteed acceptance. Some no medical exams have a basic questionnaire that needs to be completed. Still, that’s not an overwhelming task for many people – answer a dozen yes or no questions and as long as you’re able to answer them all no, you qualify.
What medical exams offer
What do you think of the idea of a car insurance company that offers car insurance where they don’t take into account your driving record? They might as well put up a sign that says “19 year old drivers who’ve had 8 accidents, apply here”. As a good driver, with no other information about the insurance company, would this be a company you’d likely go with?
If you’re applying for life insurance, disability insurance, or critical illness insurance it should be clear that for a company to offer you the best rates that they need healthy people. An insurance company full of clients who signed up from their hospital beds is a company that’s going to pay way too many claims. And clearly, more claims means higher premiums.
So, to get the lowest possible premiums on these types of insurance, it pays both the clients and the insurance company to take medical exams. If you’re healthy, you should prove that you’re healthy (by taking a medical exam). That way the insurance company can price based on healthy people.
In short, a medical exam proves you’re healthy, and ensures that you’re going to get the lowest rates.
Not everyone can or wants to take a medical exam
Not everyone can or wants to take a medical exam. And it’s not only for health reasons. Sometimes people just don’t like needles. Or they’re healthy but travel to places that traditional insurance companies don’t want to provide coverage for. Or they have a non-life threatening medical condition that the companies don’t understand (if the company can’t assess the risk, they won’t assume the risk. They don’t play guessing games.).
So there are absolutely people for which no medical exam life insurance is an important product. Still, it should be clear that the general clientele for these products are those people that for some reason don’t qualify for regular insurance. That means higher risk for the insurance companies, and that means either premiums or benefits must suffer.
No medical exam life insurance premiums
In many cases, premiums are higher for these products. That’s certainly one thing they don’t promote in the TV commercials. But higher than what? Well, higher than ‘regular’ or standard life insurance rates for those that took a medical exam. That does not mean it’s the most expensive product for you.
Let’s say you could qualify for regular life insurance at $50/month. Perhaps no medical exam life insurance is available at $95 month. Is it worth $45/month to you to skip a medical exam one time? For most of us, the answer is no, it won’t.
But let’s say you’re outside the lines of traditional underwriting. You take a medical exam, and the insurance company says they can’t cover you at $50, but they are prepared to offer you insurance for $150/month. Now the $95/month coverage on the no medical exam insurance looks both like a lot less hassle and a lot cheaper.
So from a premium perspective, you should expect to pay a higher rates than standard or regular rates. If you qualify for regular life insurance just by taking a medical exam, the savings can be substantial. If you don’t qualify for regular rates, this no medical exam life insurance can sometimes actually be less expensive than plans that require a medical.
There’s two things you want to compare with no medical exam life insurance – the premiums and the benefits. In the following sections I’m going to address the general differences between different types of insurance and the differences in benefits between no medical exam products and products that require a medical exam.
No medical exam life insurance
No medical exam life insurance typically has a simple handful of qualifying questions. As long as you can answer them all ‘no’, you qualify for the insurance. Questions range from little more than ‘are you upright and breathing’, to a more detailed list of questions like ‘have you had cancer in the last 5 years’.
You should expect premiums to be higher for these products than for a plan where a medical exam is required. Still, as I noted above, for some folks that have would be subject to high ratings these no medical exam plans can sometimes be cheaper than the alternatives.
For an individual life insurance policy that required a medical exam, you’re covered for ‘death’ with very few exclusions as soon as the policy is in place and in force. For no medical exam life insurance the ‘limited benefits in the first two years’ comes in to play. This phrase means that no medical exam policies pay only for death do to accident in the first two years. In this case the opposite of accident isn’t ‘on purpose’, it’s death due to medical reasons that it won’t pay on.
Most no medical exam policies are permanent life insurance – variations on traditional whole life insurance. After the initial two years of limited benefits, and ignoring the higher premiums, these no medical exam life insurance policies look pretty much the same as a regular life insurance policy when it comes to paying claims.
However, some no medical exam policies are term insurance polices. These policies are often not renewable and not convertible. At the end of the term you have no options in the policy – it doesn’t renew and you can’t convert it into a permanent policy. This can potentially have some pretty dire consequences.
No medical exam disability insurance
For people with no disability insurance coverage at work, obtaining a standard disability policy on an individual basis can be a real pain. In my experience, consumers hate both the lengthy underwriting requirements and the perceived high cost.
In addition many people simply can’t qualify for a regular plan, sometimes for reasons that have nothing to do with medicals. I was recently declined for disability insurance due to my occupation. Occupation? I’m a somewhat non-traditional life insurance broker. What’s the worst that I could be doing? I stay away from power tools and electrical outlets and (most of) my clients don’t hate me so much that they’d beat me up and put into a claims position. Yet I wasn’t even offered a rated policy with a higher premium – I was flat out denied.
There’s two very curious things about no medical exam disability policies. First, they’re often actually less expensive than a medical exam policy. Secondly, while the situations where these policies would pay out have been minimized, some of the other benefits are often enhanced!
A disability policy that requires a medical exam is generally going to pay out if you’re disabled – no matter how you became disabled. This is the big difference between those policies and the no medical exam policies. Common no medical exam policies pay out only as the result of an accident – they don’t pay out for disability due to medical reasons.
So if you fall and break you’re ankle, a no medical exam policy is going to pay out. If you’re stressed at work and become disabled as a result, don’t expect your no medical exam disability policies to pay out.
Now here’s the interesting part that I touched on earlier. Because these policies would commonly only pay out for accidental reasons, premiums are often inexpensive compared to a regular disability insurance policy.
Secondly, you can easily get these policies with no waiting period. If you claim, you can claim from day one (subject to your policy having this feature). By comparison I normally recommend a 90 day waiting period – three months before a claim would start – for a regular disability policy.
Thirdly, you can receive benefits to age 70 if you’re disabled. Many people’s disability coverage at work will only provide coverage for 2 years or 5 years if you’re disabled. Individual disability policies can provide coverage for 2 years, 5 years, or to age 65 but many people don’t go with the to age 65 option due to cost.
So in summary, no medical exam disability insurance would normally only pay out if you’re disabled due to an accident, as opposed to being disabled for other reasons. This can actually both lower the premiums and increase some of the other benefits of the policy when compared to a typical policy that required a medical exam. An interesting alternative even for healthy folks as long as you’re aware that you’re not covered for some types of disabilities.
No medical exam critical illness insurance
No medical exam critical illness insurance premiums are typically within range of medical exam critical illness policies, though they can be less expensive. So, about the same price, sometimes a bit cheaper.
However, the big drawback with no medical exam critical illness polices is their benefit coverage. The insurance industry uses a fairly standard list of covered medical conditions. For a medical exam critical illness policy you would expect to see 26-29 covered conditions (heart attack, stroke, cancer, etc).
On no medical exam life insurance polices, many companies will provide coverage for only a dozen or 15 covered conditions. The no medical exam process comes at the cost of much more restricted benefits – they don’t cover as much.
The second drawback with no medical exam critical illness comes in the premiums structure. Critical illness premiums are similiar to life insurance premiums – you can purchase a premium structure that increases every 10 years (10 year term) or a structure that’s level for life (permanent/term to 100).
With no medical exam critical illness insurance companies take a variety of approaches. Some offer 10 year term rates to age 75. Others offer 5 year rates with no guarantees of the premium in year 6. There’s little in the way of standards across companies, so just a reminder when looking at no medical exam critical illness to compare premiums with respect to the structure (term, permanent, etc), the guarantees (at renewal), as well as conversion (whether you can convert your term premium structure over to permanent).
No medical exam life insurance has higher premiums than a standard life insurance policy, but may actually be less expensive for someone who’s likely to be rated. The tradeoff is in the benefits.
No medical exam disability can have competitive or even inexpensive premiums and better coverage, the tradeoff is in that the covered conditions are restricted.
And no medical exam critical illness coverage can have competitive or inexpensive premiums, the tradeoff is in the covered conditions and potentially in the guarantees of the premiums structure in future years.
In short, it’s not as simple as “no medical exam means everything’s the same just easier”. There’s a definite tradeoff between your proving your insurability vs. your not proving it. It may be worthwhile, but make sure you compare both premiums and benefit coverage with comparable fully underwritten policies that are available to you.
Glenn Cooke is a life insurance broker and president of Life Insurance Canada. He’s licensed for life insurance in most provinces in Canada.