What is Simplified Life Insurance?
What is simplified life insurance?
If you've ever looked into getting life insurance, you may be familiar with the long, drawn-out, invasive process it involves. You fill out an extensive questionnaire about your health. Then you have to meet with a doctor or nurse from the insurance company to have a physical exam, a blood draw, and possibly other medical tests to determine whether or not you quality for a policy. If you do, the results will determine how much they should charge you.
From start to finish, the entire process of getting life insurance can take four to six weeks1 and a lot of your time in paperwork and medical appointments. And that's assuming that you are able to get in to see a doctor. It's enough to deter many people from getting life insurance at all.
But there's a different type of life insurance that bypasses much of the paperwork, and doesn't require physical exams or sharing of your bodily fluids with an insurance company. Known as simplified-issue life insurance, these type of plans are growing in popularity and availability.
If you're looking for a quick way to get life insurance coverage and prefer to preserve your privacy, a simplified-issue life insurance plan may be for you. Here's what you need to know.
What is simplified-issue life insurance?
Simplified-issue life insurance is life insurance that you apply for through a simplified process. Instead of a long medical form, you fill out a short questionnaire about your health. Your ability to get a policy and the rate you will get will depend on your answers to these questions.
Examples of questions you may be asked include:
- Do you smoke?
- Are you terminally ill?
- Are you HIV positive?
- Have you ever had a stroke?
While you don't fill out a detailed medical history or have an exam, you do have to sign an agreement allowing the life insurance company to search databases like yourmedical and driving history2 to verify your answers. This may include them reviewing your individual Medical Information Bureau report, running your name through a pharmaceutical database (to see what medications you take), and reviewing your driving record through your state's DMV.
What are the benefits of simplified-issue life insurance?
The biggest benefits to consumers seem to be how quickly and easily you can get life insurance, as well as the ability to maintain your privacy by skipping the medical exam and providing samples of bodily fluids.
A 2019 consumer study from LIMRA and Life Happens3 found that 47% of American adults said they were more likely to buy insurance using simplified underwriting. The main reasons they gave were:
- Ease and speed of application process (63%). You can often get coverage in a matter of days, rather than many weeks.
- Price transparency (57%).
- Unbiased and objective application process (57%). This is in contrast to the traditional process, where you talk directly with an underwriter and get examined by a doctor and then a decision on eligibility and rates is made without you understanding exactly how the process works.
- Don't need to see a doctor, have a medical exam, or give blood or urine (56%).
Is a simplified-issue life insurance policy right for you?
A simplified-issue policy will generally cost you more than a traditional policy sometimes two to four times as much.4 That's because the insurer has to factor in that they can't get as good a sense of just how at risk you are of dying during the term of the policy.
If you are young and healthy, you'll typically save money by going with a traditional life insurance policy and submitting to a physical exam, a blood test, and possibly a urine test as well.
However, the cheaper plan may not always make the most sense for your situation. If you want a policy that will kick in quickly, a traditional plan is not the way to go, especially if there any obstacles to you getting into a medical appointment. You may need a policy that can start quickly if you're trying to get a bank loan that requires you to have a life insurance policy. This is known as a collateral assignment of life insurance5 and may be necessary to secure a loan for which you lack collateral.
Depending on your health situation, you may not qualify for simplified-issue policy. If you're rejected by one company, it's worth trying again because every company uses a different algorithm to determine eligibility and price.
If you keep hitting road blocks but want to make sure you have something in place for your loved ones, you can still get a guaranteed-issue life insurance policy. It's exactly what it sounds like a plan that guarantees you can get coverage. The main downside: cost. These are typically the most expensive policies you can buy, often many times more expensive. That's because they will literally insure anyone who applies, with no evaluation of risk. In addition, guaranteed-issue plans are typically all graded plans,4 with death benefits not kicking in until you've held the policy for two to three years.
With simplified issue life insurance, you get coverage within days, instead of weeks, and without timeconsuming paperwork and medical appointments.
What do you need to know when shopping for a simplified-issue policy?
You can buy both term life insurance and whole life insurance through simplified-issue. It's best to know which type of policy (term or whole) and how much life insurance you'd like to buy before you start shopping.
Rates vary, and even a small difference in price can add up over time. An additional $10/month means you'll pay an extra $120/year. That's $1,200 in total if you buy a 10- year term life policy.
Different companies have different questions they ask to determine eligibility and rates. So if you have any underlying health issues, it pays to review the questionnaires of a few different policies.
Some simplified-issue life insurance plans won't pay the death benefit unless you've held the policy for a certain period of time6 typically at least two years. If you pass away before then, your beneficiaries would simply receive however much you had already paid in premiums, minus a fee. This is called a graded benefit. If you want or need a policy that will kick in right away, you need to avoid policies with a graded benefit.
Where do you find a policy?
It used to be hard to quite hard to find a simplified-issue life insurance policy. However, thanks to recent changes in the market, this is no longer the case.
"We have seen simplified and automated underwriting expand considerably over the past few years both in the number of companies offering it and the types and size of policies available," says Catherine Theroux, spokesperson for LIMRA,7 a research trade association.
"LIMRA research finds life insurers offer simplified underwriting for face amounts ranging from $25,000 to $10 million," Theroux explains. "The coverage depends on the applicant's age and reported health. "
If you have an insurance company or agent you work with for other types of insurance (car, homeowners, health), it's worth asking if they sell simplified-issue plans. For a list of other companies, check out this list of companies that offer simplified-issue term life insurance.2 While it's not comprehensive, it's a great place to start. Your financial planner may be able to point you toward some good resources as well.
Important disclosure information
This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
- Jonathan Fritz, "How Long Does It Take To Get Life Insurance?" noexam, updated May 27, 2020, accessed June 24, 2020. Back
- Ed Leefeldt, "Simplified issue term life insurance: The basics," Insure.com, updated December 16, 2019, accessed June 24, 2020. Back
- Life Happens, "2019 Insurance Barometer Study," published April 1, 2019, accessed June 24, 2020. Back
- Celeste Tholen, "Guaranteed Issue vs Simplified Issue Life Insurance," published August 27, 2018, accessed June 24, 2020. Back
- Investopedia, "What Is a Collateral Assignment of Life Insurance?" Updated Jun 23, 2019, accessed June 24, 2020. Back
- Colin Lalley & Nupur Gambhir, "What Is Simplified Whole Life Insurance?" Policygenius, published March 18, 2020, accessed June 24, 2020. Back
- https://www.limra.com/, accessed June 24, 2020. Back
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