An unexpected, untimely death can lead to horrible repercussions for the surviving family. Aside from the devastating emotional effects, your family will likely also be faced with negative financial issues, too. Life insurance is an important tool to keep your family’s financial future secure.
There are three main types of no exam life insurance to explore:
Each has its own advantages and disadvantages, while also fitting a specific need. No one type is any better than the other, however a certain type may simply be more suitable versus another when considering need, budget, and underwriting requirements.
Finding the perfect life insurance policy can be a bit confusing. But don’t worry – we’re here to help. Below is our complete primer on everything you need to know before you start shopping for life insurance.
The 3 Main Types of No Exam Life Insurance
There are a variety of life insurance policies available, tailored for practically any type of situation. Basically, however, life insurance can be broken down into two main categories: term and permanent.
No Exam Term Life Insurance Explained
Term life insurance is the more common type of life insurance. Often referred to as “pure life insurance coverage,” this type of insurance offers pure death benefit protection. There is no underlying investment component or cash value build-up.
As the name implies, term life insurance is based around specific terms of coverage. Typically, the purchases will select whether they want coverage for 5, 10, 15, 20, 25 or 30 years. The policy is only active during the pre-selected term.
Once the term passes, the policy will need to be renewed. This often leads to increased policy costs, because the new policy’s price is based on the applicant’s current age. In general, you’ll find better rates on longer term policies.
The 5 Types of Term Life Insurance Policies
Term life policies can be divided into five distinct categories:
1. Level Term
This policy has a death benefit which remains constant (or “level”) throughout the entire term. In most cases, the premium on the policy stays the same, too.
2. Decreasing Term
With this policy, the death benefit decreases each year. The policy ends when the amount of the benefit reaches zero. This type of policy generally has a very specific use. Most people use a decreasing term policy as a way to pay off the balance of a home mortgage should an unexpected death occur.
3. Increasing Term
In a similar vein, an increasing term policy is one where the death benefits increase over time. This policy is typically purchased as a cost-of-living rider for an existing whole life policy. One of the main benefits of this type of plan is that premiums generally stay the same from month to month.
4. Renewable Term
These are renewable policies. Common term lengths are five, 10, 15 and 20 years. At the end of each renewal period, the holder can re-evaluate their needs. They can purchase another term easily, and without a medical exam. The downside is that the premiums likely increase for each renewal.
5. Convertible Term
This type of policy acts as a bridge between a term life insurance policy and a permanent life insurance policy. The advantage here is the policyholder can “try out” a policy without making a long-term commitment. They can get a feel for the customer service of the insurance company while also determine how the monthly payments will fit into the household budget. When the term is over, the policyholder can then choose to purchase a permanent plan, without the need for a medical exam.
So, what is permanent life insurance? We’re glad you asked…
Non-Med Permanent Life Insurance
Term policies eventually expire. A permanent policy, on the other hand, has no expiration due to time. Permanent life insurance policies also have a savings or other type of investment component.
There are five types of permanent life insurance:
1. Whole Life Insurance
This is often a popular option among young people who are the main financial providers for their family. The death benefits on a whole life policy are usually guaranteed, so you can know exactly how much money your family will receive in the event of your unexpected passing.
The other reason this type of policy is especially popular among younger people is that the cash value of the policy grows over time. Even better, this growth occurs on a tax deferred basis. Tax is only due on the gain when the money is withdrawn from the account. If you have no immediate need for the money, this type of policy can be a great way to save for your family’s future.
Note that this type of policy is usually not a great way to save for the short term. For the first few years, the balance of the investment will be slow to grow. Plus, the bulk of the money generated will be put towards both commissions and policy fees.
Most policies offer a minimum guaranteed rate of return. Over time, you’ll see the policy grow. A Permanent Whole Life Insurance policy is a comprehensive way to protect your family’s finances.
2. Universal Life Insurance
Like Whole Life Insurance, Universal Life Insurance provides a death benefit and a savings component. The different is that a Universal Life policy is more flexible.
The policy owner can change:
- The death benefit
- The amount of the premium payment
- The timing of the premium payment
Each policy will have different limits related to the potential changes, but this type of policy still gives policyholders more control over their life insurance.
When a premium payment is made, that payment is split into two different categories. One part of the payment goes to cover the cost of the insurance. Another part of the payment is credited to the policy’s cash value account. The flexibility of this type of policy allows you to decide how the payment will be distributed proportionally into each category.
There will be times when the savings component isn’t earning a robust return, and you’d prefer more of your premium to go toward the death benefit coverage. Other times, you’ll want to focus on increasing the savings. With a flexible policy, you can be as involved or hands-off as you like.
Variable Universal Life Insurance is similar but with the ability to invest the cash portion of the policy into different types of equity investments. This could include stocks, mutual funds or other.
3. Guaranteed Universal Life Insurance
This is a relatively new type of coverage which offers a variety of different policy riders. Similar to Universal Life Insurance only with more payment and policy options. For instance, you can transfer larger sums of money into the policy to reduce premium payments. Also, several payments can be made in succession, in order to avoid future billing.
4. Indexed Universal Life Insurance
For those looking to build up a substantial bit of money over a relatively longer period of time, this might be for you. The policy provides the standard death benefit, but also offers a cash value component. The value is based on an underlying index, such as the S&P 500.
5. Variable Life Insurance
To be clear, these are some of the riskiest types of policies. The investment component is dependent on something market-based which could include stocks, mutual funds, both and more. The specifics will depend on the exact policy details. The main point is that the underlying cash value will be affected by market fluctuations.
The death benefit component will usually be structured with a guarantee to never go below a certain amount. This is usually the original purchase price. So, while this policy carries risk to a certain extent, there are always certain assurances about the level of death benefits.
Final Expense Life Insurance
This type of non medical life insurance is also often referred to as “burial insurance” or “funeral insurance.” General benefits range between $5,000 all the way up to $50,000 or more. At a minimum, final expense insurance typically covers the burial, funeral and general, related expenses for the beneficiaries, with little to no remaining balance.
These policies are generally underwritten as either a guaranteed or simplified issue. For a guaranteed issue, no medical questions are asked at all. For a simplified issue, medical and health questions are asked but no exam is required.
There are some stipulations to final expense life insurance policies, however. Guaranteed policies typically have higher premiums. Most guaranteed policies and many simplified policies also have a requirement where the policyholder must live for at least two years after the purchase date in order for benefits to be paid.
The idea of purchasing life insurance isn’t always thought about as much as it often should be. People, naturally, prefer not to dwell on the idea of their own mortality. This is especially true for younger people.
But researching and purchasing life insurance is a great way to provide your family with security at a time when they would need it the most. Even young families should make proper preparations. Also, because many insurance policies are bungled with savings components, the earlier a policy is purchased the greater the financial benefits can be – and you don’t have to pass away in order to enjoy those benefits, either!
So don’t let anxiety keep you away from a responsible life insurance plan. By breaking down the types of plans into the general categories described above, finding the appropriate type of insurance for your needs should be quick and easy. You and your family deserve financial security and peace of mind.