Last updated: July 11th, 2022
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Simplified whole life is a permanent life insurance policy that does not have a medical exam requirement in order to get approved. Whole life insurance policies have level premiums with either a level or increasing death benefit, depending on how the cash value is used. Some of the premiums go into an investment vehicle that earns a guaranteed interest rate. This is where the cash value builds up. When whole life insurance is called simplified, it refers to the application or underwriting process. The main thing you can expect from any policy that is classified as simplified is there is no medical exam needed to get a policy.
Simplified issue whole life policies are for those wanting to cover their final expenses and leave some money to family or charity. These are not policies built for investment purposes.
If you’re looking for final expense life insurance, your health is crucial to the policy’s benefits.
| Level/Immediate policy | Provides full coverage on day 1 |
| Graded policy | Pays only a percentage of the full benefit amount during the first year or two. |
| Modified policy | Pay a return of premium plus 6% – 10% of the full benefit amount during the first 2 years. |
Important to understand: No matter whether the policy is level, graded, modified, or guaranteed issue, it will pay the full benefit amount immediately if death is due to an accident.
If you’re looking for final expense insurance, your health is crucial to the policy’s benefits. Different types of policies have different payouts at varying time points:
*Depending on the company and product.
Guaranteed issue life insurance is a type of modified life insurance policy. What that means is the benefit is modified to pay only a return of premium plus 6% of the full benefit amount on non-accidental deaths during the first few years.
Guaranteed issue policies often get a bad rap for being expensive. They are designed to cover burial and final expenses, so when you look at the cost of a $25,000 policy, it will probably shock you. But when you look at the cost of a $10,000 policy, it will probably make sense.
Important note:
Don’t assume you need a policy with no health questions. Policies offered on TV and by funeral homes are expensive. You can often find better-priced policies with much better benefits by comparing several companies and talking with an independent broker.
Traditional whole life products normally require a medical exam, but a few companies will waive the exam for policies with lower coverage amounts — typically under $400,000. Even if the product is marketed as a simplified issue policy, you may still have to take a medical exam if the company decides it is necessary.
Most do. Only applications for guaranteed issue whole life policies have no medical questions. These are modified policies that pay only a return of premium plus 6% of the full benefit amount for a non-accidental death in the first few years.
While graded and modified policies have waiting periods, you may be able to get full, first-day coverage with a level whole life or traditional whole life policy, depending on your health history. If you haven’t had any serious medical conditions in the past 3 years, you have a good chance of getting a policy with first-day coverage.
Yes. All simplified issue whole life policies build cash value. Traditional whole life policies have features that allow you to borrow against the cash value. They also offer tax benefits, as the cash value compounds tax-free. Bear in mind that while level, graded, modified, and guaranteed issue whole life policies all build cash value, the amounts are typically only available if you choose to cancel the policy.
Applications for simplified issue whole life policies are all different. This means it is very important to find the policy that offers the best benefits for your situation. You may be able to get first-day coverage if you choose the right company. Compare applications for several companies or find a knowledgeable independent agent who can help you. Some insurance agents specialize in final expense insurance policies.
Typically, no. If you are required to take a medical exam, the product isn’t really simplified. You may need to have a phone interview with an underwriter to provide additional information. In some cases, records could be requested from your doctor.
If you already have a will and a living trust, and you have ample funds set aside to pay for your final expenses, then no. But there are some reasons that make simplified issue whole life insurance policies worthwhile. they offer, at the very worst, a 6% return on your money if you die from natural causes during the first few years. The money is tax-free to your beneficiaries. And, the policy acts as a contract that circumvents probate, so a check is issued quickly.
For level-benefit policies that offer first-day full coverage, you need to have been in good health for about 3 years.
For graded policies, the standard is a history of good health for about 2 years.
If you have had a serious health condition that was treated or diagnosed within the past year, you are likely to qualify only for a modified or guaranteed policy that has a waiting period for full benefits.
Term life insurance and whole life insurance are different animals. Only about 3% of all term life insurance policies are paid out to beneficiaries. For the rest of the policies, the owner either outlived the term of the policy or let the policy lapse.
Whole life insurance builds cash value and never expires. The risk for insurance companies is much greater with whole life insurance, so only smaller coverage amounts are available for simplified issue whole life policies. Most policies provide up to $25,000 in coverage. If you’re in great health, you may be able to get up to $400,000 in coverage.
Simplified issue whole life insurance policies are not cheap. They typically cost 15 – 20 times more than term life insurance. Simplified issue whole life insurance is best for people over the age of 50 who want to leave money to their families and pay for final expenses. Expect to be surprised by the cost if you are looking for higher coverage amounts. That being said, whole life insurance is a great option for helping your family with the transition of assets. Whole life insurance has the advantage of avoiding probate, so beneficiaries receive a check quickly.
Brian is the founder and CEO of Insurist and carries Life, Health, and Property & Casualty licenses in all 50 U.S. states. Since 2013, Brian has been a member of Million Dollar Round Table, a designation for the top 1% of financial advisors worldwide. Brian has been featured in Yahoo! Finance, Money.com, Entrepreneur.com, Life Happens, Forbes, MSN, and Good Financial Cents. Brian’s goal is to show customers the best products, the quickest answers to their questions, and provide expert advice.
