If you pay attention to advertising on radio and television, you have heard the term “no-exam” life insurance. The advertising is so prevalent that it is hard to miss. (I suppose that’s the point of advertising…lol)
However 30 second radio or television ads do little to really explain the product, and whether it’s a good fit for you. After reading this article you will be far better informed about the pro’s and con’s of “no medical exam” policies than the general audience that the advertisements reach.
What is no medical Exam life insurance?
No exam or “non-med policies are the fastest growing segment in the life insurance market. With the exception of eliminating the medical exam, these policies are structured the same as policies that require an exam.
Like fully underwritten term policies, most no exam term policies are in-force for a term of 10-30 years.Dependent on the policy language, at the end of the term, the policy will expire or be optionally continued as an ART or annual renewable term.
3 Reasons for Choosing the no Exam Option
There are generally three significant benefits to using No Medical Exam policies.
Convenience– The obligation to give urine and blood samples to a medical technician is more upsetting to some than others, it’s difficult to imagine anybody looking forward to the experience.
For some people it’s the misery of fasting prior to the exam, while for others, time is the major concern. Still others, just can’t handle the thought of blood or needles.
Whatever the reason, a significant percentage of life insurance customers are not interested in taking a medical exam for life insurance.
Fear of the Unknown– While No Exam life insurance policies do not require blood and urine they are medically vetted. The underwriting is done on the basis of your medical records, your prescription history, your driving record and the Medical Information Bureau or MIB.
So, although your prior medical history is available to the underwriter, any information that would be obtained by a current blood sample is not available. This may be significant if you have not seen a doctor recently.
It is very common for life insurance applicants to find out about a potentially serious condition when they get blood work results (and a bad rating) from the life insurance company after applying for a policy.
This unfortunate case is avoided by getting life insurance with no exam (and then following up with an annual physical).
Speed of Issue– Because there is no required medical exam, and subsequent lab results, the underwriting process is dramatically faster. Instead of waiting 5-14 weeks to get a typical policy in force, a No Exam policy is often in force in 2-14 days.
Is No Exam Life Insurance Priced Differently?
No exam term life insurance uses the same model as traditionally underwritten term insurance. Th formula is best explained as (COI) or cost of insurance + investment and administration costs + carrier profit = charged premium. The cost of insurance (COI), which is the largest chunk of the formula, is determined by risk analysis. The risk calculation is based on gender, age, health, lifestyle and any additional benefits offered such as conversion rider opportunities.
Because health grading must be less exact with a no exam policy, many carriers charge a premium to compensate for the additional risk being taken by the carrier.
However, with the competitiveness of the marketplace, this additional premium and the free flow of information, has led some carriers to offer no medical exam policies up to $1MM with no additional premium charged.
What Factors Go Into Choosing A No Exam Life Insurance Company
The important differences when choosing between no exam life insurance companies are price, and financial strength.
Normally, convenience would be viewed as a major factor. However, with no exam, the inconvenience issue is largely removed. So let’s take a look at pricing and financial strength ratings one at a time.
Is Getting Pricing As Easy as Using An Online Quote Tool?
With full exam policies, if you are in great health and only concerned with cost, it really can be that easy.
However, with no-exam policies the quote tools are of less value. This is because the life insurance market is changing by the day.
With new no exam policies and increasing benefit limits being announced every week, the smartest route is to speak with an independent agent.
Simply put, whether shopping for a no exam policy or not, if you have any medical concerns or want to know about rider options, or financial strength of the carrier, you’re better off speaking with an independent Agent.
Although S&P and Moody’s rate several life insurance companies, of the well known ratings agencies, the most heavily relied on in the life insurance market is A.M.Best .
As a general rule, good independent agents will offer companies in the top four AM Best categories A++,A+,A, A- . These categories represent superior (A++, A+) and excellent (AA, A-) ability to meet ongoing obligations.
That is, they are well run and can pay their debts.
There are some occasions where the only option to get affordable
coverage is to use a lower rated (or unrated) carrier.
Typically, a Low/No rating carrier situations will come up with so called “final expense” policies. These are immediate issue, small face amount policies with no exams.
Conclusion
As technology advances and the excess premium paid for no exam policies goes away, the only good reason to choose policy options that require a medical exam is because the amount of coverage you need is not offered in a no exam policy.
Even in such a case it may make sense to split the coverage into two policies and max out a no exam policy. This protects the customer from a surprise finding on the exam from eliminating all options. Just remember to do the no exam policy first, as the exam results will be reported to the Medical information Bureau.
In short no exam policies protect the customer from surprises, inconveniences and slow underwriting departments, at little to no increased premium.
James Tobin, CFP is the founder of the Life Insurance Help Desk. In addition to providing expertise on life insurance matters, he teaches ESL and is a news junkie. Mr. Tobin reside with his wife in Norwalk, CT