Simplified issue life insurance

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No price appears on this page, and none is sent by email. What a contract costs depends on the person and the design, and no honest figure can be produced from three answers.

What decides a simplified issue contract

• The health questions are the underwritingThere is no exam, so the answers carry the whole decision. An answer that is inaccurate or incomplete can be reviewed at claim time.
• The amount available is cappedAn insurer accepts a narrower risk without an exam, so the size of the contract offered stays well below what full underwriting can reach.
• A decline does not close the fileInsurers do not ask the same questions and do not read the same condition the same way. The wording of the question matters as much as the condition itself.

What simplified issue life insurance actually is

Simplified issue life insurance is an ordinary individual life insurance contract applied for on a short health questionnaire, with no medical examination, no fluids collected, and in most cases no report requested from the family doctor before the contract is issued. The applicant answers a fixed set of questions, the insurer reads the answers, and a decision follows in days rather than in the weeks that a full assessment takes.

What is simplified is not the contract. It is the evidence the insurer accepts before issuing it. A fully underwritten application is an investigation: a long questionnaire, an examination by a paramedical service, blood and urine, a statement from the attending physician, sometimes an interview. Simplified issue replaces that investigation with a list of questions and a rule about what happens when one of them is answered yes.

Everything else about the contract is ordinary. It is owned by the person who applied for it or by whoever is named as the owner, it names a beneficiary, it is payable on death, and where the answers qualify the applicant, the full amount is payable from the first day the contract is in force. There is no waiting period on a properly qualified simplified issue contract, and that is the single clearest line between this product and the guaranteed issue contract at the far end of the same family.

The family itself is set out under life insurance with no medical examination. This page stays on simplified issue, because the interesting question here is not how quickly the contract is issued. It is what happens years later when somebody makes a claim on it.

The questionnaire, and how a knockout question works

The questionnaire is short, and it is not gentle. Each question on it is a knockout question, which means it is not scored, not weighed against the others, and not balanced by anything good in the rest of the answers. One yes ends the application. That is the whole of the mechanism, and understanding it changes how a person should read the form.

The questions are broad on purpose. A short form has to capture a whole class of risk in a single sentence, so it is written wide rather than precise. A typical question asks whether the applicant has ever been diagnosed with, treated for, or advised to seek treatment or testing for any of a list of conditions, and then names a list that covers the serious cardiac, neurological, respiratory, hepatic, renal and oncological categories in a few words each.

Two features of that sentence do most of the damage. The first is the word ever, where the applicant reads recently. Some questions are bounded by a stated number of years and some are not, and the difference is the difference between two answers. The second is the phrase advised to seek treatment or testing, which captures a recommendation the applicant never acted on. A referral to a cardiologist that was never booked is still a referral. A sleep study that was suggested and declined is still a suggestion on the record.

Because a yes ends the application, there is nothing to negotiate. Under full underwriting a condition usually produces a rating, which means the insurer offers the contract on adjusted terms rather than refusing it, and a person with a managed condition frequently ends up insured. Simplified issue has no such middle. The answer is yes or it is no, and the file closes on the first yes.

One practical consequence follows immediately. A declined application becomes part of a person’s insurance history and later applications ask about it, so it is worth reading every question slowly before answering any of them.

The mechanism that decides the claim

Here is the part of this product that no brochure puts on the first page. The insurer issued the contract without verifying the answers. It did not order the medical record, it did not call the family doctor, and it did not ask anybody to attend an examination. The verification was not skipped. It was deferred.

Insurance legislation across the country, and the contract itself, give the insurer a limited window in which it may contest the contract on the ground that the application misstated something. That window is commonly the first two years the contract is in force, running again from any reinstatement, and after it closes the contract is generally incontestable except in the case of fraud. That is a general statement of the law rather than legal advice, and the exact wording that binds any particular contract is in that contract.

While the window is open, a death claim is investigated. The insurer requests the medical record, the pharmacy history and the attending physician’s notes, and it compares what is written there with what was written on the application. The comparison is not sympathetic and it is not meant to be. It is the assessment that was postponed, carried out with the file complete.

The failure, when it comes, is almost never a lie. It is a memory. A person answers the way anybody answers a question at a kitchen table, from what they would tell a friend about their health, and the record contains a specialist referral from four years ago, a medication that was tried for six weeks and abandoned, a note that reads rule out rather than diagnosed. Any one of those can be the difference between a paid claim and a voided contract.

When a contract is voided the insurer returns the premiums and pays nothing else. The family is left holding a refund at the exact moment it expected a settlement, and it discovers by the worst possible route that there was no coverage. That is the characteristic failure of this product, and it is entirely preventable at the application.

How to answer a short questionnaire accurately

The remedy is unglamorous and it takes an afternoon. Answer the questionnaire from records rather than from memory, because the claim will be assessed against records rather than against memory, and the two are not the same document.

A pharmacy will print a list of everything dispensed over a period on request, and that list is the fastest way to recover the medication that was tried and stopped. A family doctor can produce a list of diagnoses, referrals and tests ordered. Between those two documents, most of what a short questionnaire asks about is visible in front of the applicant instead of being reconstructed from the last few years of feeling well.

Then read each question word by word and answer the question that is printed rather than the question that was meant. If it says ever, it means ever. If it says advised, a recommendation counts whether or not it was followed. If it names a period of years, count the years. Where a question is genuinely ambiguous, the answer is to disclose and let the insurer decide, because something disclosed and accepted is settled and something omitted is not.

If an honest answer is yes, the application ends, and that is a far better outcome than an inaccurate no. A person in that position has not run out of options: the guaranteed issue route asks no health questions at all, a full application may produce an offer on adjusted terms that a short form could never have produced, and the wider category is set out under no medical life insurance.

Finally, keep a copy of the completed application. In most contracts it forms part of the contract, and a family asked about it years later should be able to read exactly what was asked and exactly what was answered.

What is gained, and what the shortcut costs

What is gained is real. There is no appointment with a paramedical service, no needle, and no waiting on a report from a doctor’s office, which is the slowest step in an ordinary application. A decision arrives in days, and for a person who has been putting the subject off for years, that is worth something no comparison of price will show.

What is also gained, and it is worth saying plainly because the neighbouring product does not offer it, is full coverage from the first day. Where the answers qualify the applicant, a death from any cause is payable at the full amount, subject only to the ordinary contract provisions such as the suicide clause in the first policy years and the contestability rule described above.

The cost of the shortcut is that the insurer priced a class rather than a person. It has to assume that some applicants who passed the questions would not have passed an examination, and it prices accordingly. For a healthy applicant who could comfortably complete a full application, the simplified route is the more expensive way to buy the same protection, and the difference is not small. Convenience is being purchased, and it has a price even though the price is not printed anywhere as such.

The second cost is the size of what can be bought. Every insurer sets a ceiling on the amount it will issue without evidence, the ceiling differs from contract to contract, and above it the insurer wants an examination. The upper age at which an application will be accepted is also set by each contract. Neither of those is a number this page will invent, because both change and both belong to the contract rather than to an article.

The third cost is choice of shape. The simplified route generally offers fewer contract shapes and fewer riders than a fully underwritten application, and where a term contract is offered, the right to convert it later may be narrower than the one attached to a fully underwritten term policy. That matters more than it sounds, because the conversion right is what a household relies on when its health changes.

What the money is realistically for

Because the amount available is bounded, the honest question is what a bounded amount actually does for a household. Four uses account for most of it.

The first is the cost of a death itself. A funeral, a burial or cremation, the death certificates, the travel of relatives, the professional fees of settling an estate, the months of a property standing empty while it is sold. Those costs arrive within weeks and they arrive before anything from the estate is available. That is the ground covered by final expense insurance, and the practical side of it is set out under final arrangements and funeral planning.

The second is a debt that would otherwise follow the estate and reduce what reaches the people who were meant to receive it. A balance cleared by an insurance payment is a balance that no longer has to be paid out of a house that somebody wanted to keep.

The third is time. A surviving spouse with a settlement in hand in a few weeks makes different decisions from one deciding about a house, a car and a job with nothing in the account. The money is buying the ability to not decide anything urgently.

The fourth is a specific promise. Something set aside for a grandchild, a gift to a charity, an amount that equalises what two children receive when one of them is inheriting a property and the other is not.

What a bounded amount does not do is replace an income for a young family with children and a mortgage. That need is measured in multiples of a household income over many years, and where a full application is possible it is met on term life insurance or on a twenty year term at a fraction of what the same amount would cost on a simplified basis, if a simplified contract would even issue for that amount, which it usually would not.

Where this product does its best work

It does its best work for a person with a health history that is real but stays clear of the knockout list. Managed conditions, an old event that is genuinely in the past, ordinary middle age with ordinary prescriptions: those applicants pass the questions honestly, get a contract in days, and get full coverage from the start.

It does its best work when the need is modest and defined. Final costs, a debt, a promise to a particular person. A bounded need met by a bounded product is a good match, and the speed is a genuine benefit rather than a substitute for thinking.

It does its best work when there is a deadline. A separation agreement that requires coverage by a date, a closing, a departure. Where the calendar is the binding constraint, a contract issued in days is worth more than a better priced contract issued in six weeks. The same is true for the person who has avoided the subject for a decade because of the examination, since a contract that exists is worth more than a better one that was never applied for.

It is a poor match for a healthy applicant who needs a large amount and has no deadline, because full underwriting will almost always produce more coverage for the same outlay. It is a poor match for anyone whose honest answer to a knockout question is yes, whose route runs through guaranteed issue or through a full application that can consider the condition properly. And it is a poor match for anybody who is guessing at the answers, because guessing on this product is not a small risk taken by the applicant. It is a large risk taken on behalf of the family.

Simplified issue beside the routes on either side of it

Three routes lead to an individual life insurance contract, they differ in what the insurer looks at and when it looks, and every practical difference between them follows from that.

The line worth carrying away from that table: the difference between simplified issue and guaranteed issue is not mainly price, it is when the coverage becomes real, and the difference between simplified issue and a full application is not mainly convenience, it is who carries the risk that the health picture was described accurately.

Tax, and the beneficiary designation that decides where the money goes

The death benefit of a life insurance policy is generally received free of income tax in Canada, and that treatment does not depend on how the contract was underwritten. A simplified issue contract is taxed like any other life insurance contract, which is one of the few places where the shortcut costs nothing at all.

The designation matters more than most applicants realise, and on a short form it is a single line that takes four seconds to complete. Proceeds payable to a named beneficiary generally pass outside the estate. They are not delayed by the administration of the estate, they generally do not attract probate fees where a province charges them, and they are generally out of reach of the creditors of the estate. Proceeds payable to the estate lose all three of those advantages at once.

That is exactly the wrong trade on a contract bought to pay for a funeral, because the whole point of the money is that it arrives before anything else does. Naming the estate on a final expense contract is the most common way to defeat the purpose of buying one.

Two further points are worth the minute they take. Name a contingent beneficiary, so that the money still has somewhere to go if the first beneficiary dies first. And where the intended beneficiary is a minor, the proceeds cannot simply be handed over, so the designation should be made to a trustee or through the arrangement a lawyer or notary recommends, rather than to the child directly.

Designations should also be read again after a marriage, a separation, a divorce or a death in the family. A designation made twenty years ago is still the instruction the insurer will follow, and a will does not override it.

What this product does badly

It is priced for a class rather than for a person, so a healthy applicant pays for the risk that other applicants in the same class brought with them.

It is bounded in amount, which means it cannot answer a large protection need no matter how convenient it is.

It has no middle ground. A condition that a full application would consider carefully and often accept on adjusted terms simply ends a simplified application, which means the product declines people it could have insured if it had been willing to look.

It shifts the burden of accuracy onto the applicant and defers the consequence to the family. That is the deepest criticism of it, and it is fair. Describing a decade of health in twelve broad questions, with no record in front of you, is genuinely hard, and the penalty for doing it imperfectly falls on somebody who was not in the room.

And it offers fewer shapes and narrower rights than a full application. Where the need is permanent, the shapes worth comparing are set out under permanent life insurance and term to 100, and the participating contract under whole life insurance. None of that is a reason to avoid simplified issue. It is a reason to know what is traded away for the speed.

The mistakes this page exists to prevent

Answering from memory. The claim is assessed against the medical record, so the application should be answered against the medical record.

Reading advised to seek treatment as though it meant received treatment. A recommendation that was never followed is still on the record and still answers the question.

Assuming the questions are a formality because nobody asked for evidence. Nobody asked because the asking was postponed, not cancelled.

Taking the fast route when a full application was available and there was no deadline. Speed that costs coverage is expensive speed.

Cancelling an existing policy before a new contract has been issued and is in force. An older contract is frequently worth more than it looks, replacing one is a decision to be examined carefully rather than a default, and nothing should be cancelled while an application is still an application.

Not keeping a copy of the application, and not naming a contingent beneficiary.

Questions people ask

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