By: Al Lurty, Fellow of the FLMI, Retirement Income Certified Professional, and Wealth Management Certified Professional
As a consumer, you may be seeing promotions and ads for “instant issue” or “no exam required” life insurance, offering coverage you can apply for and purchase in minutes. You’re probably wondering if there’s a catch. Let’s examine how this process, known in the industry as simplified underwriting or simplified issue (SI), has worked in the past and changes that are occurring now.
Historically, life insurance has been purchased either as an individual, typically with a full application, or as part of a group (through an employer, or an association the person is affiliated with). The SI approach has been utilized when purchasing smaller amounts of individual insurance, or in these group settings (in many cases an employer provides a certain amount of group life insurance, typically one times salary, and offers the opportunity to “buy up” additional amounts using SI).
In SI, there are no medical exams or lab requirements (blood/urine samples), and the questions on the application have been whittled down to 5-10 “knockout” questions that usually relate to being actively at work, recent hospitalizations, and incidence of “dread diseases” such as cancer, heart attack, stroke, etc. If any of these are answered unfavorably, the applicant is typically declined for coverage.
In the past, SI offered quick issue of a policy. The trade-off had been that, because the underwriting process is less comprehensive, the premiums were higher than what could be had for the same coverage amount on a fully underwritten basis, in many cases 50-100% higher or more. But the value offered was “check the box” coverage and much less hassle. And carriers, expecting that healthy individuals would go through full underwriting to save money, and less healthy people would go the SI route, priced accordingly.
In recent years, advances in underwriting technology, particular relating to obtaining useful underwriting information from vast medical, prescription and other related databases, has allowed carriers to significantly narrow the pricing “gap” between SI and full underwriting. In particular, in the early stages of the COVID pandemic, insurers had been forced to figure out how to sell insurance and underwrite without making physical contact with the applicant, and they pursued these approaches aggressively.
Today, there are a number of carriers that promote a “15-minute” underwriting process for life insurance policies typically up to $500,000 or even $1 million of coverage, and some are experimenting with higher face amount limits. It’s a good idea to talk to your financial professional about the programs available and obtaining a quote. The good news is that it is easier than ever to obtain meaningful amounts of life insurance at competitive prices.
In my next post, we’ll discuss “guaranteed issue” life insurance, how it works, what it costs, and provisions particular to this type of insurance.
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