Is Simplified Issue Life Insurance the Right Choice for You?
- Simplified issue life insurance offers coverage to people who don’t qualify for standard policies. Learn about the pros and cons of these exam-free plans.
Because many carriers require you to undergo a medical examination when applying for life insurance, individuals with underlying conditions or health risks may find it difficult to qualify for a policy. The good news is that if you’ve been turned down for traditional coverage, you may still have options. Simplified issue life insurance offers limited coverage to individuals who don’t qualify for standard life insurance plans, providing financial protection to your designated beneficiaries. In this article, we’ll explore the advantages and disadvantages of simplified issue life plans so you can determine if this type of insurance may be right for you.
What Is Simplified Issue Life Insurance?
Simplified issue life insurance, which is sometimes referred to as simplified whole life insurance, is a type of final expense insurance that pays out a death benefit only. There’s no cash value or savings component included. Plans are designed to provide coverage to individuals aged 45 or over, who have health conditions that might keep them from qualifying for a traditional life insurance policy. Although simplified issue life insurance plans are typically whole life policies, some small companies also offer simplified term insurance.
This type of policy simplifies the underwriting process, asking applicants only a few qualifying questions about their health, medical history and lifestyle. A medical exam isn't required for approval. However, certain conditions, such as terminal illnesses, may still prevent you from qualifying.
How Does Simplified Issue Life Insurance Work?
When you apply for simplified issue life insurance, you’ll fill out a questionnaire or complete a phone interview to answer qualifying questions about your health, lifestyle and medical history. Because it uses a streamlined underwriting process, you'll get a coverage decision almost immediately. If you're approved, you’ll begin to pay premiums on your policy, and your coverage will begin according to the terms set forth in your contract.
As long as you pay your premiums as scheduled, simplified whole life coverage remains in effect for the duration of your life. After you die, a death benefit is paid to your beneficiaries. This benefit may be used to cover final expenses, outstanding debts or help cover the cost of living. If you’ve opted for a simplified issue term policy, coverage continues for the duration specified in the contract.
How Much Coverage Is Available Through Simplified Issue Life Insurance?
Because it’s designed for higher-risk individuals, simplified issue life insurance typically offers less coverage than standard life insurance plans. Although it is possible to get as much as $500,000 in coverage from certain insurers, most companies offer a death benefit that’s closer to $100,000. For some carriers, the amount is even lower.
What Are the Pros and Cons of Simplified Issue Life Insurance?
If you won’t qualify for coverage through a standard underwriting process, simplified issue life insurance may offer a way to protect your dependents after you die. However, if you’re considering purchasing this type of plan, you should be aware of its advantages and disadvantages.
The Advantages of Simplified Life Insurance:
- A shorter and faster underwriting process
- No required medical examination
- Higher odds of approval
The Disadvantages of Simplified Life Insurance:
- Higher premiums
- Lower death benefits
- Coverage isn’t available through most major insurers and may need to be purchased through a small, less stable carrier
It's important to note that some plans may also require individuals to have the plan for up to two years before their death for their beneficiaries to receive the maximum payout. If you die before then, beneficiaries are typically issued a refund of the premiums already paid into the policy.
Could You be Disqualified From Simplified Issue Life Insurance Coverage?
Yes. Although simplified issue life insurance is designed to cover individuals who can’t qualify for traditional life insurance, you can still be disqualified. If any of the follow situations apply, you may not be approved for coverage:
- You have a terminal illness.
- You’ve been diagnosed with Alzheimer’s, dementia or congestive heart failure.
- You’ve received an organ or a bone marrow transplant.
- You’re bedridden or living in a skilled-nursing or another long-term-care facility.
- You’ve had heart surgery within the past year.
- You’ve been diagnosed with cancer within the last two years.
- You’ve recently been advised to undergo a nonroutine surgical procedure or diagnostic testing.
A licensed agent or broker can help you determine if you qualify for simplified issue life insurance. Individuals who don’t qualify for this type of policy can still receive coverage through a guaranteed issue life insurance plan.
What’s the Difference Between Simplified Issue and Guaranteed Issue Life Insurance?
Whereas simplified issue life insurance offers applicants a better chance of being approved for coverage despite medical conditions, guaranteed issue life insurance guarantees coverage. Although neither type of policy requires a medical exam, guaranteed issue life insurance also doesn’t require applicants to answer any health or lifestyle questions.
Because coverage can't be denied, even for applicants who've been diagnosed with a terminal illness, guaranteed issue insurance is more expensive than a simplified issue policy. Coverage is also more limited, as it’s primarily designed to pay for burial and other final expense costs.
What Is the Simplest Form of Life Insurance?
A basic term life policy is probably the simplest form of life insurance. Term policies, which offer limited-term coverage typically in five-year increments, pay a death benefit only if the insured dies during the plan’s coverage period. This type of policy doesn’t include a cash value or investment component, which may form a component of whole life policies.
Guaranteed issue life insurance is also considered one of the simplest forms of life insurance because of its minimal underwriting process, which doesn't include health-related questions. This type of insurance also doesn't require a medical exam.
Is Simplified Issue Life Insurance Worth It?
Although simplified issue life insurance makes it easy for almost anyone to get coverage, it isn’t the best option for everyone. Because of its streamlined underwriting process and lack of medical exam, this type of coverage is risky for the carrier, often making it prohibitively expensive for the consumer.
If you think you may qualify for traditional term or whole life insurance coverage that uses a standard underwriting process, you can potentially get more coverage at a lower cost. A licensed insurance agent or broker can help you explore coverage options so you can make an informed decision and purchase a policy that suits your family’s needs at a price you can afford.