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Life insurance without a medical exam can be a risky proposition - but do buyers know?

Life Insurance and Annuities
by Lisa Jiang
Life insurance without a medical exam can be a risky proposition - but do buyers know?
Life insurance without a medical exam can be a risky proposition - but do buyers know?

When you watch TV or do a web search for life insurance, you see the same message over and over again: "Get life insurance — no medical exam required!" That may be great news for many people who don't want to go through the hassle of scheduling and attending an appointment and just want the coverage they're looking for with as few hoops to jump through as possible.

However, what many people may not realize about no-exam life insurance is that it certainly carries some risks with it. As CNN notes, life insurers can make a number of risk assessments about any applicant with just a brief questionnaire, but there is still quite a bit about any person's unique health situation that they cannot account for in actuarial tables. As such, there is added risk with any applicant who is specifically seeking out a no-exam policy, and that means they will cost policyholders more (sometimes significantly so).

There are definitely people for whom a no-exam policy can make some sense, specifically young people, those who don't want for a weeks-long waiting period after an exam before their coverage goes into effect, or those who don't necessarily need high-limit coverage. Otherwise, experts would generally recommend that applicants simply go through the process of getting a medical exam to keep their costs lower and find the right amount of insurance for their needs. The problem, however, is these issues are not always explained to applicants, and that can lead them to make some decisions that end up being injurious for them over the life of their policies.

A medical exam for life insurance can make a huge difference.A medical exam for life insurance can make a huge difference.

Giving them the full view
It would generally be a good idea for life insurers to be far more up front about the tradeoffs that come with a no-exam policy. Haven Life puts it succinctly: Applicants may feel like they need to ask, "What's the catch?" but the arrangement seems so good and simple that they go through with it, not fully understanding how the decision to go without an exam can affect them.

That impact can take a number of forms. These include higher premiums, smaller coverage amounts (in many cases, of half or less than the limit that comes with an exam), as well as fewer policy options. Put simply, that's the catch: Applicants are paying more for potentially less in terms of flexibility, all to avoid a medical exam that will often take no more than 20 or 30 minutes. Again, it may take weeks for the results of that examination to be processed and for the coverage to go into effect, which is another matter for applicants to consider, but people may not even know what the exam itself entails, and may be avoiding it due to some misconceptions they have about how in-depth it would be.

Helping them understand
Most people will come into the life insurance application process with a fairly clear idea of what could impact their premiums, including the kind of coverage they're looking for (i.e., term life costs far less than universal policies), their age, how much coverage they want, their general health and so on. As Bankrate points out, one of the less considered factors here is gender, but its effect may be relatively muted in comparison with the previously mentioned considerations.

With that in mind, life insurers have to understand that some applicants who are seeking no-exam coverage specifically because they think their age or their health condition will negatively impact their ability to get coverage, or get it at a reasonable price. For that reason, it might be wise to give them a glimpse at what no-exam coverage will look like versus a standard policy that involves a brief exam. This can help them make the right short- and long-term financial decisions around the coverage they obtain.

Guiding them to the right options for their needs
As with anything else related to life insurance, underwriters should aim to ensure their policyholders have the coverage they need based on their unique personal situations. Generally speaking, the point is to get coverage that replaces roughly 10 to 12 times a person's annual salary. For many working Americans, even no-exam coverage can meet those needs, according to the consumer financial advice site DaveRamsey.com. Obviously, those who might be more burdened by the higher premiums that come with it, but again, in certain situations, there's nothing wrong with people obtaining this kind of coverage.

The larger point is insurers may need to do more to make sure people seeking life insurance coverage have the information they need to make fully informed decisions. This kind of extra effort or explanation will not only get people to the point where they have the necessary life insurance policies in place, but also completely satisfied with what they choose.

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