Recently I was talking to some clients and they said they saw and ad on TV where they could get life insurance without going through any underwriting and they wondered if it was a good deal. They were under the mistaken impression they could buy the $750,000 they require for the same price as a fully underwritten product but that simple isn’t true.
Life insurance companies help you protect against a possible risk, like your family suffering financially if you were to die. Insurance benefit can help cover the mortgage, replace the income of the deceases spouse and create an education fund and provide money for child care if you have small children. It can be used by business owners to provide the funds for your buy/sell agreement.
Premiums are based on your age, smoking status and your health as confirmed during a brief visit from a nurse who takes a blood test, checks your blood pressure, height and weight and asks some basic questions on your health history and that of your parents and siblings. That allows the insurance companies to mitigate their risk (in this couple’s case the risk is $1.5m as they are each getting $750k of coverage). The only way you can buy that much coverage is to go through underwriting as it would just be bad business for an insurance company to guarantee to pay out that much money without doing their due diligence.
Guarantees issue policies don’t have the underwriting portion and they do have their place in the market. They are limited to a lower benefit amount, usually less than $75,000 and some cases limited to $25,000 it depends on which company the product comes from. If you know your health would preclude you from being approved under a standard policy it may be better than not having any coverage at all.
The premiums are always much higher than a fully underwritten plan as the insurance companies know that if you were confident you would pass you would take that underwritten plan and save money. It’s just common business sense to protect against risk.
There are also products in between that are usually referred to as “Simplified issue” products, they have a series of questions that if you can answer no to them all you may be approved without further underwriting providing you don’t have any red flags with the Medical Information Bureau (MIB). These products are priced in between and in a few cases quite close to fully underwritten plans. The benefit amount is still lower than fully underwritten plans and are usually limited to under $100,000.
The moral? While the ads are flashy and make it look so easy it may not be the best plan for you. I have helped clients with all kinds of solutions including some guaranteed issue plans; we explored their options and went with what was best based on research and facts. Talk to an independent advisor to get the right plan for you, it could save you a lot of money.
Make sure your plan makes sense for you, now and with an eye to your possible needs in the future.
