Simplified issue life insurance

Should you buy simplified issue life insurance?

Simplified issue life insurance is designed for those who don’t qualify for traditional life insurance due to their health or age. The application process is fairly simple and typically only involves answering a few health-related questions. 

Premiums for simplified issue term life insurance are much higher than those for traditional term or permanent policies. Insurers charge more because of the increased risk they take by forgoing the comprehensive medical exams typical of traditional life insurance.

While simplified issue life insurance is a good coverage option for people who can’t otherwise get coverage, those who are eligible for traditional life insurance or have a lot of savings shouldn’t opt for this type of coverage. 

What is simplified issue life insurance?

A simplified issue life insurance policy is a product for those who want a faster, easier application process. Traditional life insurance requires a lengthy application. Besides completing a detailed questionnaire, most carriers require a medical exam.

Simplified issue life insurance requires fewer questions, and there's no medical exam. Life insurance is issued more quickly.

"One of the biggest advantages of simplified issue life insurance is that the insurer decides faster — sometimes in minutes, compared to several weeks for traditional underwriting. Also, the application is much shorter: A simplified issue life insurance policy will only ask you a handful of health-related questions and there is no medical exam," Seth Buckley, president at Buckley Financial, a life insurance brokerage, says.

Insurers use algorithms and databases to assess your health rather than an exam. You fill out an application, usually online.

What is the average cost of simplified life insurance?

Life insurance rates depend on a wide variety of factors. Even without a medical exam, your health history will play a role. So does your age, lifestyle, and even your hobbies. And, of course, the amount of coverage you purchase will affect your rates.

Below, we’ve provided sample annual rates for a simplified 10-year term life policy with a $100,000 death benefit. Rates are provided for a 30-year-old male and female, regular health category.

As you increase the death benefit and the length of the term, rates will go up. Whole life will be even more costly because it lasts your entire life.

How to buy simplified-issue term life insurance

Major insurers sell simplified-issue term life insurance policies online or by phone. In recent years, the options for online life insurance have grown, and it’s easier than ever to buy a policy. You fill out the application and submit it, often getting an instant answer.

Simplified issue life insurance policies range from whole life options designed to pay final expenses to term life policies that can provide up to $1 million.

As easy as it is to get life insurance this way, it’s still important to research before you buy. The quickest option isn’t always the best choice.

Simplified-issue term life insurance policies cost more than traditional term life insurance for the same amount of coverage. That's because the insurer doesn't know as much about your health as it would if you had a medical exam and had filled out a more detailed questionnaire.

"As a rule, simplified issue is always more expensive than fully underwritten policies. The insurance companies are taking more risk by not having all of the medical records, and charge a higher premium per thousand of protection to hopefully offset the increased risk," Kim Wilhelm, owner of Final Expense Direct, a life insurance agency in Houston, Texas.

If you’re young and healthy, you will likely get more coverage for your money by going through the full underwriting process, including an exam. It’s important to balance the convenience of simplified issue against how much you'll pay in the long run.

Pros and cons of simplified issue life insurance

If you're considering a simplified issue policy, make sure you've reviewed the pros and cons first.

Advantages of simplified issue life

There are several advantages to choosing a simplified issue life insurance policy.

• Convenience. The application is easy to fill out, and you don’t have to worry about a medical exam.
• Availability. These policies are available from a wide variety of insurance companies, including those that sell policies online and to a wide age range.
• Contactless. No one comes to your home or office, and you can get a policy issued without contact.

Disadvantages of simplified issue life

• Limited offerings. These policies may not have as many options for riders as a fully underwritten policy.
• Price. The cost of simplified issue life insurance is likely to be higher, especially for young, healthy people. Without the information provided by a medical exam, insurance companies take on more risk insuring you and charge you more.

Simplified issue vs. guaranteed issue life insurance

The difference between simplified issue and guaranteed issue is that you can't be turned down for a guaranteed issue policy. While simplified issue insurance has a much easier application process and lighter underwriting requirements, you may still be turned down based on your health history or other factors.

Guaranteed issue is most common in final expense insurance, a type of whole life policy intended to provide a small death benefit for final expenses.

Is simplified issue life worth it?

For young, healthy people, a simplified issue policy is not the most cost-effective way to get coverage. "Healthy applicants will benefit from fully underwritten policies because they can qualify for the best rates," Buckley says.

So when does simplified issue life insurance make sense?

It might be the best option if you have health problems that make it difficult to qualify for a fully underwritten policy.

"Individuals who qualify for simplified issue policies would be declined for fully underwritten policies in most cases," Wilhelm says.

Bear in mind that there will still be some health questions, so you might have to look into guaranteed issue life insurance instead if you have serious health problems.

"One disadvantage of simplified issue life insurance is that some simplified issue policies will only pay the full death benefit to your beneficiaries if you had the policy at least two years before death. If an insured person dies less than two years after getting the policy, the beneficiaries will typically get a refund of the premiums paid, with some interest," Buckley says.

If you’re willing to pay more for the convenience of a quick turnaround time and skipping the medical exam, then simplified issue is for you.

If you decide to go ahead with simplified issue life insurance, make sure you shop around. Get quotes from multiple insurers and choose the option that works for you.