Life Insurance: Your 3 Main Options

Life Insurance: Your 3 Main Options

by Leslie Freeland, October 9, 2017

When choosing life insurance, there are three main types of policies you can choose from:

  • fully underwritten

  • non-medical

  • guaranteed issue

Which one is right for you?

The answer to this question really depends on your personal needs and goals – and is often heavily driven by your health.

To determine the best option for you, answer these questions:

  1. How much insurance do you need?
  2. How long do you need the insurance?
  3. Do you want the insurance to expire after a certain period of time, or do you want it to last your whole life?
  4. Are you in a hurry? Do you need it now, or can you wait?
  5. Do you need extra coverage that covers you if you become disabled?
  6. Would you like to get all of your monthly payments (premium) back when your insurance ends?
  7. What is your budget?
  8. How is your health?
  9. Are there particular health conditions that run in your family?
  10. What are your hobbies?
  11. What is your occupation?
  12. Do you currently have life insurance?
  13. Are you willing to take a medical exam?
  14. Do you want extra money to help pay for long-term care or critical illness needs?
  15. Are you a student or unemployed?
  16. Would you like to build cash value?

There are many more questions you need to consider when choosing an insurance policy.

But don’t feel overwhelmed!

This is where your insurance agent comes in.

Your agent will know the right questions to ask and will be able to present several options to you that satisfies your needs. The best type of agent to go with is a fully independent agent who has access to many insurance companies. This type of agent will be able to choose from a wider variety of policy options.

A good agent will ask you all the above questions and more to find you a policy that fits your needs and budget.

The 3 Types of Life Insurance

Type 1: Fully Underwritten Life Insurance

This type of insurance requires you to take a medical exam.

Medical equipment to check your heart health

To get fully underwritten life insurance, you’ll need to have a medical exam. The insurance company may provide an examiner to visit you at home and do the exam, or you may need to visit a doctor’s office. The insurance company usually pays for the exam.

The medical exam normally involves a weight and height check, blood pressure check, a questionnaire about your health and lifestyle, and provision of a blood and urine sample.

You can expect to answer questions about your family medical history, any doctors you’ve visited in the past or hospitalizations, any medications you take, your exercise habits, smoking, drinking alcohol, and drugs, and if you have any history of depression or anxiety.

You’ll have to wait for your lab results before you can be approved for this type of insurance, which can take several weeks.

It is possible to fail the medical exam and be denied coverage. Common reasons for failing include obesity, high cholesterol, lipids, and triglyceride levels in your blood work, blood or protein in urine, drug use, high blood sugar or a history of cancer in the family.

This does not necessarily mean you will be unable to get insurance from a different company, but be aware that results from past medical exams may be available to insurance companies through the Medical Information Bureau (MIB).

The Medical Information Bureau is an organization set up to allow insurance companies to share health information about applicants. The MIB will keep a record of your health history and can provide this information to other insurance companies in the future. Make sure answer every medical question truthfully! If you lie, you will be caught, and your beneficiaries may receive nothing. In addition to your online health information, the insurance company will look at your pharmacy records and driving report.

The main attraction of fully underwritten policies is their lower cost.

Fully underwritten insurance also offers a larger coverage amount. If you want to make sure that your family receives the maximum amount of money possible after you die, this type of insurance is probably the best option.

Advantages:

  • Usually the least expensive of the 3 options
  • You can usually purchase more coverage
  • You may qualify even if you have pre-existing medical conditions
  • No waiting period to receive full death benefits
  • Usually includes living benefits (or you can add them on)
  • Depending on your policy, often builds cash value
  • Usually level premiums (your monthly payment will not increase)
  • Depending on your policy, usually the death benefit will not decrease
  • You can buy policies that will or will not expire (many options)
  • Much more insurance for the same premium
  • Larger selection of insurance companies and policies

Disadvantages

  • Takes longer to get approved
  • Requires a medical exam
  • You may fail the medical exam and be declined

 Best If You:

  • Are in good health
  • Are in no rush
  • Need a large amount of life insurance

Type 2: Non-Medical Exam Life Insurance

(also known as ‘non-med’ or ‘simplified issue’)

This type of insurance allows you to apply for a policy simply by answering a series of questions about your health.

Two insurance forms on a clipboard with a pen. ** Note: Shallow depth of field

Non-medical life insurance skips the exam and allows you to provide your own details about your health status. You must answer the questions on the health questionnaire truthfully as you’ll be denied payout later if you claim for something you lied about on your application.

Because there’s no need to wait for the results of a medical exam, you can arrange this type of insurance much quicker – usually in less than 48 hours and sometimes instantly. This can be useful if you want or need to arrange immediate coverage.

Some insurance companies only allow low-risk individuals to apply for insurance without a medical exam. This usually means fitting within a certain age range, being a non-smoker, and being in good health generally.

Even though you don’t take a medical exam, the insurance company is still going to look at your online health records and your driving record.

Advantages:

  • Much faster to get coverage
  • No need for a medical exam or needles
  • You can usually qualify even if you have pre-existing medical conditions
  • Less expensive than guaranteed issue life insurance
  • Usually no waiting period to receive full death benefits
  • Usually includes living benefits (or you can add them on)
  • Depending on your policy, often builds cash value
  • Usually level premiums (your monthly payment will not increase)
  • Depending on your policy, usually the death benefit will not decrease
  • You can buy policies that will or will not expire (many options)

Disadvantages:

  • Costs more than fully underwritten insurance
  • Lower maximum coverage amounts
  • There is a limit to how much you can purchase
  • Medical questionnaire
  • If you have a serious health issue but are still approved, there may be a waiting period
  • You can be denied coverage based on your answers to the medical questions

 Best If You:

  • Have a pre-existing medical condition
  • Are a student or unemployed
  • Experience extreme anxiety with the medical exam, such as fear of needles
  • Need fast coverage (have upcoming travel, need to secure a loan, etc.)
  • Young and don’t need much coverage
  • Failed the medical exam of fully underwritten insurance (you may still qualify for non-med)
  • Want life insurance now while you wait for your fully underwritten insurance to go through

Type 3:  Guaranteed Issue Life Insurance

(aka ‘guaranteed acceptance’ or ‘no questions’ insurance)

This type of insurance allows you to apply for a policy simply by filling out an application.

Approved Guarantee Brand Label Concept

Guaranteed issue life insurance is just like what it sounds: guaranteed. No matter what your circumstances, you will get a policy. It doesn’t matter if your health is bad or you have no income. This does come at a cost though. The premium payments will probably be higher on a guaranteed issue life insurance policy compared to a non-med or fully underwritten policy.

This type of life insurance is often called “last resort” insurance because it’s fairly expensive. In general, it’s much better to try and purchase a non-medical insurance policy first. Then if you are disqualified, you can purchase the guaranteed issue policy. Don’t just assume your poor health or age will prevent you from getting a non-med policy. It’s a good idea to apply for non-med insurance first before purchasing a guaranteed issue plan.

Guaranteed issue life insurance can be approved in a matter of minutes, so you’ll have peace of mind that your family is protected immediately. This type of insurance is often purchased for final expense coverage, insurance that helps pay for your funeral and burial expenses.

One unique feature of guaranteed issue life insurance is the ‘graded benefits.’ This means if you die too soon (for example within two years of the policy purchase date), your family will only receive a portion of the insurance money. The insurance companies have a reason for this. People who have recently been diagnosed with a serious illness have been known to run out and buy an insurance policy, knowing they will die soon. This a type of fraud that graded benefits prevents.

Note: Some companies have a ‘knock out’ question. When you apply, they ask you one ‘yes’ or ‘no’ question, and if you answer yes, you will be unable to purchase the insurance. For example, one company asks if you have recently had kidney dialysis.

Advantages:

  • Guaranteed coverage
  • Fast approval
  • No medical exam
  • No medical questions
  • Insurance company ‘must’ pay out
  • Sometimes builds cash value
  • Sometimes includes living benefits such as chronic illness or terminal illness coverage
  • Level premiums (your monthly payment will not increase)
  • The death benefit will not decrease
  • The policy will never expire

Disadvantages:

  • Costs considerably more than fully underwritten or non-med insurance
  • The amount of insurance you can buy (death benefits) are low (for example: $5,000 or $25,000)
  • Usually has a waiting period of 2-3 years where the full policy amount is not available (graded benefits)
  • If you live for many years after buying the policy, you may actually end up paying premiums that are more than what the policy is worth
  • Usually not available for anyone under the age of 50

 Best If You:

  • Have serious health issues and do not get approved for non-med insurance
  • Have been turned away from all other insurance companies
  • Are listed as uninsurable
  • Are over the age limit for fully underwritten or non-med policies

Want Fully Underwritten Insurance But Nervous About Medical Exam Results?puzzle jigsaw business concept problem solution words pieces background solution hands white global idea connection together match part work people challenge cooperation fit join two pattern shape complete object solve symbol teamwork vintagecopy space

Are you interested in fully underwritten life insurance but concerned that your medical exam might not go well? If your medical exam shows health issues, you will not only have difficulty getting fully underwritten insurance but may have challenges getting non-med insurance as well. This is because unexpected health issues may be revealed during your medical exam, so you will be required to disclose your exam results on the non-med application. The information will also be on your Medical Information Bureau report for any insurance company to see.

Because of this, you might want to consider getting a non-medical life insurance policy first. Then you can apply for a fully underwritten policy. If your fully underwritten policy gets approved, you can keep both policies or cancel the non-med one. But if your fully underwritten application gets denied, you will still have life insurance with the non-med one policy originally purchased. Doing this will give you more options.

Can You Choose Which Insurance Type to Apply For?

In most cases, it’s up to you which type of life insurance you opt for. With the help of a licensed insurance agent, you can choose the policy that fits you the best.

However, in some cases you might not be eligible for fully underwritten insurance. In this case, your only option will be to apply for a non-medical life insurance policy. This might be the case if you have a pre-existing health condition, or you don’t have an income. There may even be some extreme cases where you may not qualify for non-med, but you can still choose a guaranteed life insurance policy.

Choose the Right Policy for Your Individual Circumstances

Whether you choose non-medical, guaranteed issue, or fully underwritten life insurance, it’s important to shop around and compare different insurance companies rather than just taking the first quote that is offered to you.

This is why you want to use an independent agent. They can present you with more options.

Prices and coverage can vary, and different insurance companies evaluate individual cases in different ways. Just because you’ve been denied coverage from one insurance company doesn’t necessarily mean that you can’t apply for that type of policy from a different insurance company.

Make sure you’re getting the best value insurance to protect your loved ones financially and guarantee your peace of mind.

 

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Asurea offers Life Insurance, Mortgage Protection Life Insurance, Medicare Supplement Insurance, Final Expense Insurance, Disability Insurance, Long-term Care Insurance, Retirement Planning products and more. For additional information, click on the ‘Get A Quote’ button below. Want to have articles just like this delivered to your inbox? Just enter your email address in the box below and click ‘Subscribe.’

This information is provided for general consumer educational purposes only and is not intended to provide legal, tax or investment advice. Dollar amounts are for illustrative purposes, not actual.

 

Leslie Freeland

Leslie Freeland

Find her at LinkedIn
Leslie joined Asurea as the Marketing Communications Coordinator in February 2015. Since then, she has been working closely with insurance professionals to educate the public on the importance of life insurance and protect the public from common scams with informational articles.
Leslie Freeland

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