What’s the catch?
Most of us have seen the advertisements on TV, or heard them on the radio: life insurance with no medical tests and no health questions. How can this be possible?
Insurance companies are able to offer this type of coverage and are still able to make a profit because of the following three caveats:
1. The premium cost is significantly higher than traditional life insurance policies and simplified issue life insurance policies, which have no medical tests, but do have a short series of health questions.
For example, the following is a price comparison between BMO Guaranteed Life Plus, which is sold direct via BMO website and its call center and Assumption Life’s Golden Protection Simple Issue plan, which is sold via its broker network:
BMO’s Guaranteed Life Plus Guaranteed Plan
A face amount of $14,400 for a non-smoking male near the age of 65 costs $100 a month.
A face amount of $7,100 costs a smoking male near the age of 65 $100 a month.
Assumption Life Golden Protection Simplified Issue Plan
A face amount of $14,400 for a non-smoking male near the age of 65 costs $84.06 a month.
A face amount of $7,100 costs a smoking male near the age of 65 $67.22 a month.
Variables to Consider
- The BMO plan is a true guaranteed Issue plan. The only health question has to do with the insured’s smoking status.
- The BMO plan has a graded death benefit for non-accidental deaths during the first two years, This benefit is equal to the monthly payments you’ve made. After two years, the full basic benefit is in force for life, as long as you continue to pay your premiums.
Assumption Life Plan
- The BMO plan has an accidental death benefit, but the Assumption Life plan doesn’t. This benefit will pay your beneficiary five times your basic coverage, if you die as a result of a covered accident, but death must occur with 90 days of the accident. Coverage for the full Accident Benefit starts as soon as your policy is in-force and continues until you turn 85.
- The Assumption plan’s coverage starts from day one.
- Assumption’s plan has no medical tests but 10 health questions that insured must answer “no” to qualify
*Premium costs and plan details are as of January 2013
2. Most of these policies come with face amounts of 25,000 or less.
3. Most guaranteed issue plans have a graded death benefit. This means the insurance company will not pay out the full amount if the insured dies by a non-accidental death in the first two policy years.
4. Most guaranteed issue providers will limit the death benefit for non-accidental death to a return-of-premium, plus interest.