As a condition of coverage, most life insurance policies require every potential policyholder to submit to a comprehensive medical exam. This is a simple cost-control measure; medical exams may confirm or refute policy applicants’ written answers to health-related survey questions. In practice, they often uncover underlying health conditions that directly contradict this self-reported information.
As such, they exert a powerful influence on most insurers’ pricing models. Individuals with pre-existing health conditions or poor habits like tobacco use tend to have significantly lower life expectancies than their healthy counterparts, increasing their likelihood of early death and making them comparatively expensive to insure.
Will a “No Medical Exam” Policy Be a Cheaper Option?
While it is possible to obtain life insurance coverage without submitting to a medical exam, “no-exam” policies are likely to be considerably more expensive than policies that do require an exam. The actuarial models that insurance companies use to calculate these “no-exam” policies’ premiums compensate for a lack of pertinent medical information by assuming that the individuals who purchase these policies will have lower-than-average lifespans.
Cost of a “No Medical Exam Policy” for Parties with a Chronic Disease
However, many life insurance shoppers still seek out no-exam policies. Even if they are not considered terminal, certain serious or chronic health conditions cost tremendous amounts of money to manage. Some, like HIV and Type-II diabetes, can quickly cause fatal complications after just a few missed treatments. The cost of a no-exam life insurance policy is often less than the cost of an exam-dependent policy for insured parties with such chronic diseases.
Obtaining no-exam life insurance becomes more difficult with age. Most insurance companies offer no-exam policies for young, healthy individuals with no history of tobacco use. It is standard practice within the industry to offer a healthy applicant under 40 a no-exam policy worth up to $100,000.
After age 40, the maximum no-exam death benefit begins to decline rapidly. At 45, the industry standard is $50,000. After age 50, it may be $10,000 or less. This reflects an aging individual’s increasing likelihood of death toward the end of a standard 20-year term. Individuals whose chronic health conditions may make exam-dependent life insurance coverage expensive or difficult to find should opt to take out longer-term life insurance policies before the age-40 cutoff.
Some niche insurers specialize in providing larger no-exam life insurance policies. These plans tend to be even more expensive than their standard-sized counterparts and may come with more caveats. Like discount auto insurers that provide little more than proof of insurance, these cut-rate no-exam life insurance providers may be reticent to pay out death benefits.
For the general population, exam-dependent life insurance policies are more straightforward and cost-effective than no-exam plans, which demand higher premiums and offer smaller death benefits. Most financial planners encourage their clients to purchase life insurance policies at face values of eight to 10 times their annual incomes, making policies valued at $100,000 or less impractical for most families.
Individuals who sign up for no-exam term life insurance policies when they are young may find it difficult to renew their coverage after their term expires. Most insurers simply do not provide no-exam coverage for individuals past age 60.
Worse, they may choose to deny coverage to middle-aged or elderly individuals with pre-existing conditions. While no-exam life insurance may be a clever medium-term solution to an expensive problem, it is rarely a sound long-term investment.