The life insurance industry is finally modernizing. After years of the old style model of an agent cold calling people, getting meetings, and trying to sell a policy the client didn’t understand, things are finally starting to change. It is easier than ever to buy a policy online, and the underwriting process is getting much easier. Now, life insurance companies are starting to phase out the medical exam.
A New Approach
In the past, people needed life insurance but they hated to think about it. When an agent came to their house, sat down, listened to their financial goals and desires, and articulated the value of life insurance, people would see it was necessary and buy it.
Today people don’t want to meet with an agent. They don’t want to take hours out of their busy day to listen to what they think is going to be a cheesy sales pitch. People like to shop online. They like to do their own research and compare their options. They like to make a decision and move quickly. The life insurance industry was never good at accommodating this style.
Even after a policy is chosen and the application filled out, the client still needs to schedule a medical exam (called a paramedical exam in the life insurance industry). They need to wait for the company to call the, mutually schedule it, and get the results submitted. Worse for some people, they need to take time out of their day to meet a paramedical nurse, get their testing done, and usually have a stranger come into their homes and intrude on their lives. People would much prefer to use their own doctor, rather than have a stranger examine them.
Life insurance companies are realizing that putting clients through so much hassle is hurting their sales. Companies that make it easier for the client to choose their policy and buy are doing at better job at growing their sales. Because more people are willing to buy life insurance when the process is easier, insurance companies realized that the medical exam is a big impediment. If they can cut out roadblocks like the medical exam when they can, people will be more likely to seek life insurance.
Today, medical records are easily kept online and shared. Modern medicine has also prolonged life expectancy, and many of the ailments that were life threatening in the past are now fairly routine. An extreme example of this is most strains of the HIV virus, which can be kept in remission indefinitely with proper medication and care.
If a client is young enough, doesn’t have any known major medical issues, and they are buying term life insurance, the life insurance company knows that odds are very, very, small that the client dies when the insurance is in-force. If the dollar amount is not really big, the life insurance company is comfortable enough that they can accurately tell a client will outlive the term.
How It Works
It works very simply. If a client wants insurance, they still need to fill out an application. They also still need to authorize the insurance company to access their medical records, but they do not need to schedule a paramedical exam. Instead, they need to fill out a questionnaire. The intent of the questionnaire is to rule out the possibility that the prospective insured person has any terminal illness, or other serious disease which could pose a significant risk to their life. Usually, this questionnaire is fairly short and may consist of 20 questions or so, but it will vary between insurance companies.
There is also usually a dollar limit to the face amount of the policy. This also varies between companies, but the limit may be about $400,000. You can still apply for more life insurance of course, you will just need to perform a medical exam.
Life insurance companies now have so much data, and medical records are shared so easily, that sophisticated algorithms have been developed predicting the risk of death for someone given a set of circumstances. For instance, they may look at a client’s age, weight, home location, sex, race, income, education level, and any existing minor medical conditions. With fairly good accuracy, they can now predict how much of a risk any person represents of dying during the policy period. While this may be unsettling for some people to think about, the data is very dependable for it to work enough to write hundreds of millions of dollars of face benefit on.
If an insurance company decides that a person represents too much of a risk, it may be in the person’s interest to go through a whole paramedical exam, because this might give the insurance company additional data which makes them comfortable with the risk.
Skipping the medical exam can cut weeks off of the period between an application being submitted and the policy being issued. This is good news for the company, the client, and the agent. In the future, the data will get better and better and we will see higher and higher face amounts accepted under the new no medical exam scheme.
Please note that there are policies specifically sold as “no medical exam life insurance“, or “guaranteed issue life insurance“, and these are different. Typically almost any client qualifies for these policies regardless of their health, and they are not issued a health rating. All of these policies are considered sub-standard high risk policies and they cost a significant premium over a standard issue policy.
Is it a Good Thing?
Ultimately it shouldn’t really represent more risk to the life insurance industry, because of the limits that companies will put on policy sizes and ages that qualify for no medical exam. In fact, the medical exam is a significant cost for the insurance company, and they should save money on the underwriting process by reducing the total number of exams without raising risks.
Fewer exams will reduce barriers to clients buying policies, make life easier for those seeking insurance, and save the insurance companies money. Ultimately, it is a good thing and a necessary evolution of the industry. If you would like a quote on a no medical exam policy, call us today.