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3 Good Reasons to Buy No-Exam Life Insurance

April 27, 2015
Insurance, Life Insurance
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If you’ve ever watched daytime TV, you’ve probably heard of guaranteed issue or simplified issue life insurance. These types of life insurance offer coverage without a medical exam, and few or no medical questions. They’re typically marketed to older adults who may have significant health problems or who would be denied regular life insurance.

Not having to take a medical exam may seem very convenient. However, you’ll pay a boatload extra for the convenience, since the insurer will have almost no insight into your life expectancy. For example, a 50-year-old woman could buy a $50,000 MetLife guaranteed issue policy for about $200 per month. For the same amount, she could buy almost $2 million of 20-year term life coverage, according to NerdWallet research. And guaranteed issue life insurance benefits typically top out at $50,000 or less.

No-exam life insurance policies such as guaranteed issue and simplified life insurance should always be last resorts. But they may be your best bet if all of the following are true.

You have a chronic, unmanaged health condition

Serious health issues, like cancer, don’t necessarily make you uninsurable for the rest of your life. If you can demonstrate that your treatment has been successful or your condition is well-managed (such as taking medication for high blood pressure), you could qualify for affordable life insurance rates.

That said, if you have a condition like diabetes that isn’t well-managed — perhaps you don’t exercise or eat right — you may find yourself being rejected, or charged sky-high rates, by multiple life insurers.

Keep in mind that even simplified issue and some guaranteed issue policies ask a few health questions. If you’re terminally ill or have a condition like HIV or AIDS, you probably won’t be able to buy a no-exam life insurance policy.

You can’t get employer-sponsored life insurance

One affordable alternative for many people in not-so-great health is buying group life insurance through work. Some companies even offer it for free as part of their benefits package, and employees don’t have to undergo a medical exam to qualify.

Employer-sponsored life insurance isn’t a permanent solution — after all, if you lose the job, you lose the coverage (unless you have converted your group policy to an individual policy). And payouts are typically limited to one or two times your annual salary. But guaranteed issue and simplified issue life insurance benefits can be limited, too, so take advantage of group life insurance if you can.

You can’t provide for your heirs any other way

Guaranteed issue and simplified issue life insurance benefits are generally relatively small, and they’re not suitable for paying off mortgages or sending your kids to college. They’re typically intended to pay off burial expenses and other, minor bills. You may be able to cover these expenses simply by setting aside money every month in a high-yield savings or brokerage account.

In addition, these policies usually have “graded death benefits,” meaning they don’t pay out the full death benefit if you die within the first few years of the policy.

On the other hand, if you don’t trust yourself to put aside any savings, paying a monthly bill for life insurance may be the best way to leave money to your family. Still, with these policies it’s sometimes possible to pay more in premiums than your beneficiaries would receive after your death, so crunch the numbers to figure out how many years of premiums equal the death benefit.

If you’ve exhausted all of your other possibilities and have decided on a no-exam life insurance policy, get multiple quotes and speak with an agent before taking this step. An independent insurance agent might be able to find a company that will offer you more robust, less expensive term life insurance.

Alice Holbrook is a staff writer covering insurance and investing for NerdWallet. Follow her on Twitter @alicenerdwallet.

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