Anyone looking to buy life insurance will find the process can be complicated, and the requirements for many can be exhausting, but it doesn’t have to be. There is an insurance product that actually lives up to its name: 'simplified issue life insurance.' As the name implies, securing this type of insurance is much easier than standard life policies. So what is simplified issue life insurance? We will cover this in detail and help you decide if this type of insurance policy is for you.
Simplified application process: without going through a medical exam
Convenience comes at a cost: decide if it’s worth it
Coverage is limited: constraints with Streamlined Issue policies
How simplified issue life insurance works
Simplified issue life insurance makes it easier and faster to buy life insurance, especially if you have medical conditions that would prevent you from buying a standard policy. Buyers of simplified issue policies do not have to submit to a medical exam; they only need to complete a questionnaire.
Simplified issues are available as term and whole life policies. Simplified issue term life insurance policies provide coverage for a specific time, typically 10, 20, or 30-year terms. They are a good choice if you need coverage for a specific purpose. For example, you may want coverage while your children are growing up and want to ensure coverage until they are financially independent and no longer need your protection.
You may also want to have this type of coverage if you have a medical condition that you anticipate will improve within the term, allowing you to convert or replace the policy later.
Simplified whole life insurance will cover your entire life if you pay the premiums. Unlike term policies, whole-life policies build cash value, which can be a valuable asset in your later years. You can also use the cash value as a living benefit by taking out loans or making partial withdrawals. That type of flexibility may be useful when you need the resources to deal with life’s unexpected circumstances.
There is usually a reason someone needs to consider a simplified issue policy, whether it's the simplicity of the process or using it as a way to get coverage despite present health issues; you need to weigh the pros and cons carefully.
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Advantages and limitations of simplified issue life insurance
Simplified issue life policies have some strong advantages over standard policies. The fact that you don’t have to submit to a medical exam is one of the primary reasons to choose this type of policy.
Some people are afraid of needles or other invasive procedures that may be used during a medical exam. These policies are the perfect answer for them. In other cases, temporary or permanent health concerns may disqualify an applicant from a standard life policy. Simplified issue policies solve those problems.
There is the issue of simplicity. Getting coverage fast and with minor processing has a strong appeal to some. Many simplified issue policies can be purchased online without talking to anyone.
There are, however, some compromises if you choose this type of policy. First, your premiums will be significantly higher than those of standard policies. Insurance companies insure risk at a cost. The higher the risk, the higher the cost. You’ll need to decide if the price difference is worth it for you.
Second is the coverage amounts. Generally speaking, simplified issue policies range between $50,000–500,000 although some specialty carriers may go higher at a cost. While the limits are lower than on standard policies, you may find it is still enough for your needs.
Cost and coverage analysis
Insurance companies are willing to insure higher-risk applicants, but there is a marked difference in the cost of that insurance. Riskier policies cost the insurance companies more since claims will be higher than standard policies. Insurance companies understand that and have conducted risk/reward analysis to develop rates that still make it profitable for them to offer higher-risk still policies.
Policy buyers also need to do their own risk/reward analysis to see if the convenience is worth the additional price. Here are some examples of coverage and pricing so you have a baseline idea of what to expect.
Let’s take a younger individual with good health. They may pay somewhere in the range of $65–100 per month for a simplified issue policy with a death benefit of $100,000, whereas a fully underwritten policy may only cost $40–60 a month, depending on the carrier and the particulars of the policy.
Term life is typically much more affordable overall, yet there is still a difference in premiums between fully underwritten and simplified issue policies. For example, a healthy young person in their 20s might pay as little as $15–25 monthly for a term policy with a death benefit of $250,000 if they submit to a medical exam. The same coverage on a simplified issue policy may run as much as twice the monthly premiums.
Deciding whether a simplified issue policy is the right choice will be based on the underlying circumstances that you may have preventing you from qualifying for a standard policy, your budget, and your particular need for insurance.
Can I convert a simplified issue life insurance policy to a traditional policy later?
The ability to convert will depend on the policy terms you buy. Some insurance carriers offer the option willingly, while others may exclude it. Review your policy in detail and check if a new policy may be a better option than converting.
Are there any age restrictions for applying for simplified issue life insurance?
Yes, in most cases, insurance companies limit the age range for approving policies to 18 to 65. There are specialty carriers and insurance products that may go higher, but generally, you will find that range to be the limit.
Is there a waiting period for coverage to begin in simplified issue life insurance?
Typically, simplified issue policies have a 2–3 year waiting period before they pay out a death benefit. If the insured passes away during the waiting period, the insured may receive limited coverage, or the insured’s premium payments may be returned.
Simplified issue life insurance typically offers a faster approval process compared to traditional policies, making it an ideal choice for individuals looking for immediate coverage.
This type of insurance can be more accessible to those who might not qualify for traditional life insurance due to health issues since it requires fewer health disclosures and no medical exam.
Premiums for simplified issue life insurance are often fixed, providing predictability in financial planning without the worry of increasing rates over time.
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