You have probably seen advertisements in newspapers and magazines for life insurance requiring no physical examination, as a condition for getting insured. These policies are also known as “guaranteed issue” or “simplified issue” policies, with simplified issue insurance requiring that you just answer a few medical questions. On the surface of it, it seems like “no exam” is the type of life insurance that anyone would prefer. Why would I want to go to the trouble of getting a physical examination when so many companies seem very eager to sell me term life insurance no physical?
In addition, the prices of these policies always seem extremely low. If I am in poor health, why would I give the insurance company a reason to give me a higher quote on my life insurance? It almost seems as though the insurance companies themselves could be taking a lot of risk in selling policies of this kind to thousands and thousands of people without knowing their medical condition. After all, anyone would prefer life insurance without physical exam, all else being equal, so their potential losses would be huge if the beneficiaries of their risky policies tried to collect all at once.
Well, you can be pretty sure that that is not the case, that the insurance companies are not gambling with their balance sheets. So how can they do this?
When you choose to buy life insurance with no physical, you’re essentially requesting that the insurance company look at you in the most general terms. You are telling them to categorize you in terms of average risk across the entire population, without any regard at all for your physical condition. When the company looks at your likelihood of passing away in the next year or next 20 years, in light of very specific statistics that it has for quantifying the mortality rate across the whole population, they will not give you credit for being in good health. They will simply assume that you’re in average health, and base their rate quote on average mortality risk, which naturally is higher than it is for people in excellent health.
It is easy to assume that your life insurance premiums will be higher if you take a medical exam and find that you are less than perfect health. But you still would not know just how risky of a proposition it is to insuring you, for the insurance company. Remember, we’re not comparing your condition to that of people who are in perfect health. You would be trying to establish that your condition is better than average. If you have a couple of minor health problems you may still be much more desirable as a quantifiable risk than the “average” person. Therefore the premiums you pay would still be lower.
It goes without saying that if you are in good or very good health, you will benefit if your insurer knows about it, even if they seem to really want to sell you life insurance, no physical exam required. The prospect of life insurance without physical should be looking a little less attractive by now.
A final thought: it stands to reason that the most aggressive advertising campaigns undertaken by insurance companies would be those that have the highest profit margins. Might this be a reason why advertising for “life insurance no physical” can be found on bus benches, a top taxicabs, and on direct-mail fliers that you receive every single day? If you think you’re in pretty good health, is most likely a good idea to prove that you are, then in essence force the insurance company to give you credit for it.