It's an interesting time to be an employer. With inflation raging, a potentially painful recession looming and a worker shortage persisting due to stubbornly high turnover and low workforce participation, decision-makers are efforting to come up with both traditional and new strategies to retain their current hires and attract recruits. Aside from paying more, many organizations are considering expanding their best life insurance or other types of coverage offerings. According to a recent poll conducted by LIMRA, which surveyed employers with 10 or more staff members, a majority of respondents said they planned on adding a new insurance option within the next two years. They're smart to do so, considering separate research also done by LIMRA indicates jobseekers and those who are already employed value insurance options. Nearly two-thirds said the benefits they were getting through their workplace played a role in keeping them there.
If rolling out better or additional insurance options is something you've been thinking about doing to help with recruitment and retention, you may want to consider simplified issue life insurance. Here, we'll discuss what simplified issue life insurance actually is, why it makes sense for some users, how it works and how premium financing works well with simplified issue insurance.
What is simplified issue life insurance?
At first glance, simplified issue life insurance may seem oxymoronic, considering many people find obtaining and effectively maintaining a policy to be quite complex, especially if it's their first time.
In reality, simplified issue life insurance is appropriately named because it eliminates perhaps the most inconvenient aspect of the process: obtaining a physical with your primary care physician. Most life insurers require current or prospective insureds to obtain a medical exam as part of their underwriting process, helping them determine how much to charge in premiums. Simplified issue life insurance does away with this task, thereby making the application process less labor intensive.
You can understand why simplified life insurance would be so popular among business owners offering group life insurance coverage, particularly those with a large number of people on their payrolls. It makes the application process more seamless and can help to speed up approval times.
How does simplified issue life insurance work?
As is the case for virtually all insurance policies — life insurance and otherwise — simplified life insurance comes in different options, each with its own characteristics that make it distinctive. They include:
- Accelerated underwriting
- Simplified issue
- Guaranteed acceptance life insurance
An accelerated underwriting policy is one where there is minimal preparatory work involved for the insured to be approved for coverage, even though approval is not a certainty. In lieu of a comprehensive medical exam, the applicant fills out a medical questionnaire, which may ask about their recent and long-term health history. The offerings can be fairly comparable to a fully underwritten policy.
Simplified issue has many of the same hallmarks as accelerated underwriting; the application process is straightforward and it doesn't require going through a physical. But unlike accelerated underwriting, this type of policy entails completing a questionnaire. It also differs in coverage amounts. Traditionally, simplified issue policies are limited to $100,000, while accelerated underwriting has a coverage cap of $1 million.
Finally there's guaranteed issue or guaranteed acceptance life insurance. As its name implies, an insurance company that offers guaranteed life insurance pledges to the applicant that they'll be approved for the policy; they can't be denied coverage regardless of their health status, including pre-existing medical conditions. The life insurance company also doesn't require the applicant to answer any personal questions pertaining to their well-being.
But the assurances that come with guaranteed issue coverage also have their tradeoffs, which can make this specific simplified issue policy problematic if you or your employees are in need of a robust amount of financial protection. For example, guaranteed issue life insurance has a coverage cap of just $25,000 and doesn't have an accelerated life benefit component to it, as a waiting period must go by before the beneficiary receives the entirety of the benefit amount.
What types of health questions are asked in a simplified issue life insurance questionnaire?
Again, while there is no blood work or need to participate in a screening schedule to qualify for simplified issue life insurance, approval does entail honestly answering a series of health questions, most of which pertain to the insured specifically rather than their family's medical history. They may touch upon some or all of the following, each of which relates to their personal well-being that offer insight about health risks:
Traffic safety record
With car accidents consistently being a leading cause of death in the United States — claiming the lives of an estimated 42,915 people in 2021, according to the National Highway Traffic Safety Administration — questionnaires may ask about applicants about whether they've received any traffic citations in the last few years related to speeding, running a red light, operating a vehicle under the influence of alcohol or other reckless driving behaviors.
Terminal medical conditions
If applicants have been diagnosed with a terminal health condition recently or have suffered a heart attack, stroke or end-stage disease, they will be asked to detail what they are and when the episode occurred or received the diagnosis. Their answer may entail follow-up on the part of the insurer.
Felony convictions may also be a part of the questionnaire and typically ask respondents to specify when the conviction was as well as what for. Usually, this question only refers to convictions or guilty pleas that occurred in the past seven years from the date of the questionnaire. They may also be asked to disclose whether they're on probation (or were on it within the past 12 to 24 months) and if they've ever been incarcerated before.
Alzheimer's or dementia
If applicants have been formally diagnosed with Alzheimer's disease or some other kind of dementia, they will need to come forward with this information. While being diagnosed with Alzheimer's disease is not an indication of imminent death, it is incurable, rendering it a terminal medical condition. According to the Alzheimer's Association, it is currently the seventh-leading cause of death in the United States.
Drug or alcohol abuse
Whether the abuse is related to illegal drugs or prescription medications, applicants must reveal information on their being hospitalized or receiving outpatient treatment for drug use. It may also inquire about alcoholism.
What are the business benefits of simplified issue life insurance?
Perhaps the most obvious perk of simplified issue is the speed with which these policies are usually approved. With typical fully underwritten life insurance, the minimum wait time is weeks, sometimes longer than that depending on the insured. The approval process is usually a matter of days with simplified issue — sometimes within just two (business days).
No age restrictions
Since simplified issue life insurance doesn't require a medical exam — and health generally worsens as people get older — many seniors turn to this type of coverage. But it's available to anyone, regardless of their age. This increases your options as an employer if you have a staff that is all over the map in terms of their ages. This makes it a potentially good option for group life insurance.
Choose from term or whole life
No matter what decision you make for your business, you want there to be plenty of options. You have the traditional ones available through simplified issue, coming in both whole life as well as term life insurance. Term, as you may know, covers your workers for a specific amount of time, while whole life policies renew automatically so long as you remain current on the cost of premiums.
What are the drawbacks of simplified issue life insurance?
There is no such thing as a perfect group policy and that includes simplified issue. So it's important to be mindful of the weaknesses of simplified issue insurance. Here are a few:
Amount of coverage is limited
For the most part, the payouts from simplified life insurance are much less than traditional life insurance. The death benefit usually maxes out at $100,000, which may not be sufficient for people with dependents or still have major expenses they need to pay off, such as their mortgage or tuition. The death benefit may be substantially lower than that, too, depending on the insured as well as the terms and conditions of the insurer.
Higher monthly premiums
Compared to other kinds of insurance — such as health insurance — life insurance is generally very affordable, especially for those who are in good physical condition and are under 50. But again, relative to traditional life insurance, simplified issue tends to carry higher premiums. This is something to mention to your employees so they're aware of how this will affect their take home pay with each paycheck. How much they're charged will vary depending on their age, well-being and a few other factors.
Requires filling out a questionnaire that asks for personal information
The application process for simplified issue insurance is far less invasive than standard issue, but it nevertheless still asks insureds probing questions, which they may not be comfortable answering. However, given the alternative — a comprehensive medical exam — this drawback is rarely a deal-breaker.
Group life insurance offers tax advantages
Regardless of whether you go with simplified issue life insurance or some other kind — like those that offer an accelerated life benefit — you may be able to reduce your tax liability by offering group life insurance. As Wolters Kluwer points out, employers that make term life insurance available to all of their staff are usually eligible to deduct the cost of premiums from their federal tax bill. However, leveraging this perk requires abiding by certain non-discrimination criteria established by the IRS. For example, coverage must be made available to at least 70% of employees. Additionally, 85% of those that opt in must be non-specialized staff. In other words, life insurance can't be relegated solely to key employees. Organizations can restrict life insurance only to some people if they want to, but it will nullify the tax benefits they might otherwise have.
If you're thinking about expanding your life insurance policy offerings to your workers but are wondering how you're going to pay for it, premium financing can make it happen. Global Financial Distributors specializes in premium financing loans for individuals as well as for businesses. We can even help with simplified life insurance. Since we don't always need a full medical underwriting for each person who signs up for coverage, our solutions can nicely complement and strengthen your recruitment and retention strategy.
For more information, contact us today.