Simplified issue term life insurance: Just a few questions

If you're one of 245 million Americans whose family income is less than $100,000 and have little free time, consider yourself a candidate for simplified issue term life insurance. This coverage is easy to obtain for most people.

Simplified issue term life insurance, while offered with a variety of terms, prices and options, has a very simple premise: no life insurance medical exam and only a few questions to answer.

Buying a traditional term life or whole life policy usually requires a life insurance medical exam, which means a health care professional comes to your home to review your answers to medical questions, take a blood and urine sample, listen to your chest and wrap your arm in a blood pressure cuff.

Simplified issue term life insuranceMany people don't want their privacy invaded like this. And when both parents hold down multiple jobs, staying home for a medical technician's visit can be as annoying as waiting for the cable guy.

Also, when consumers investigate traditional life insurance, they often find too many "roadblocks," says Lewis Goldman, who handles product development for many of MetLife's products, including simplified issue life. For example, he points out the large number of questions on most applications.

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Applications for simplified issue term life, on the other hand, typically have only three to five "knock-out" questions, meaning a "yes" answer to any one question will result in a denial.

MetLife has two questions that could knock-out your application:

  • Do you have a disability that requires a wheelchair or confinement to a facility such as a nursing home?
  • Do you have a diagnosis in the last two years of serious illness like cancer or diabetes?

Other insurers might ask:

  • Do you have heart disease?
  • Do you have HIV?
  • Have you had a stroke?
  • Do you have kidney disease?
  • Do you have any cognitive impairments?

But that doesn't mean that's all an insurer knows about you before it sells you a policy. By signing the application you probably authorize the insurer to run your name through several databases, such as the Medical Information Bureau (MIB), which will red-flag anything that looks suspicious, such as multiple simultaneous life insurance applications.

Prudential's "My Term" policy allows the insurance company to check your driving record and run your name through a pharmaceutical database to check on medications. And applications make it clear that many states can and will prosecute insurance fraud, such as lying on your application.

"Most people are honest," says Mark Hug, who runs Prudential's program. He estimates that up to 70 percent of applicants for a simplified term life policy are approved.

Less complicated life insurance

The country's two biggest life insurers -- No. 1 MetLife and No. 2 Prudential -- are going head-to-head to gain customers who traditionally avoided term life insurance because they felt it was "too expensive" or "too complicated." Other insurers that sell simplified issue term life include Amica, Transamerica -- and others easily found on the Internet.

Maximum coverage amounts vary by insurer, but will be lower than the face amounts available if you shop for a regular term or whole life policy. Simplified issue policies from MetLife range from $5,000 to $100,000 in coverage; an average Prudential simplified issue policy is for $110,000.

"We want to fish where the fish are," says MetLife's Goldman. "A fast food worker doesn't need a million dollar policy; $25,000 may be enough."

"When it comes to a basic term policy offering a death benefit of $10,000 or $15,000, you can even buy it through a warehouse club store or select Wal-Marts," says Marvin Feldman, who represents Life Happens, a non-profit group that helps consumers understand life insurance and other products.

The cost of convenience

There's a trade-off for the convenience: A higher price for coverage.

"Prices can be rather high for the amount of coverage you actually get with this kind of policy," says spokesperson Loretta Worters of the Insurance Information Institute, an industry trade group.

That's because with a simplified issue term policy the insurer doesn't get to know as much about your health and, therefore, can't predict how long you're likely to live, notes MetLife's Goldman.

Simplified issue policies also lack some of the "bells and whistles" of conventional term life coverage. For example, there is limited availability of "riders," provisions in a policy that provide extra protection. Prudential doesn't offer riders for children, spouses or disability. MetLife does offer an "accidental death" rider with payouts ranging from $25,000 to $150,000 for an extra fee.

Other simplified issue insurance advantages

Insurers like MetLife make it easy to pay your premium through monthly, semi-annual or yearly automatic deductions from your checking account or debit card. This, and lower amounts of coverage, will make life insurance more affordable to more people.

Another advantage of simplified term life insurance is that the full benefit is paid immediately upon the insured's death. In contrast, some policies, such as final expense insurance, have "graded death benefits," meaning only a portion of the full face amount is paid out if the insured dies within the first couple years of the policy.

As competition intensifies and computer technology advances, even traditional term life could start to look like simplified issue life insurance.

For example, Prudential's "My Term" policy is primarily sold by banks and costs about $3 more a month for a young person than the company's traditional term life product, according to Hug.

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