So, what exactly is Final Expense Life Insurance?
Final expense life insurance is a specialized form of life insurance designed primarily to pay for burial expenses. True final expense insurance will be designed with a whole life policy, which has been around longer than any other form of life insurance. Whole life is just that; life insurance designed to last your WHOLE LIFE. Term insurance, on the other hand, is designed to “terminate” at a certain time. In the final expense industry, term insurance will generally increase in cost every 5 years or so, and it may also cancel if you outlive the termination date, often at 82-85 years of age, right when you need it most. This is why Benefit Choice Direct does not sell term insurance. We want our customers to benefit from the products they purchase with as little risk as possible.
Enough about term insurance, let’s get back to final expense. Since final expense is based on whole life, the premiums remain level for the whole of your life. However, there are some key differences between final expense and a typical whole life policy.
- DEATH BENEFIT AMOUNT Traditional whole life is written in much larger amounts than final expense. Death benefit for whole life can range from $100,000 to $5 million and beyond. Final expense, on the other hand, is written in amounts from $1,000 to $50,000. Since final expense is primarily designed to pay for burial costs, amounts greater than $50,000 are not generally required. Whole life is designed more for income protection. If you are looking for coverage to take care of your family by replacing your income if you die, you are better off seeking a fully underwritten whole life policy.
- UNDERWRITING Traditional whole life is usually a fully underwritten policy. This means that a full health questionnaire, health exam, blood draws, urine samples and possibly doctor records are sent to the insurance company for review before a policy can be approved and issued. The process can take weeks or even months to complete, and you still may not get approved. Final expense insurance requires no health exam. Depending on the type of final expense policy to which you are applying, you will have to answer anywhere from 0 – 20 questions. An instant prescription check will be done by the insurance company. You will likely need to complete a phone interview. The entire application process will take about 25 minutes and in most cases you will have a decision instantly. 30 minutes or 30 days, which do you prefer?
- COST Since final expense is not fully underwritten, and decisions are made in minutes instead of weeks, there is a slight cost increase for final expense over traditional whole life. Final expense is definitely more expensive than term insurance, but don’t fall for the trap! Agents and companies who don’t have your best interests at heart will draw you into a term policy with cheaper rates, only to increase the cost or take it away right when you need it most.
- PAYMENTS Companies who provide final expense insurance are much more flexible in the types of payments they accept. You can pay by EFT from your checking or savings account, check, Direct Express cards, credit cards and more. Each company has its own payment options, so it is best to check with your advisor before signing on the dotted line. Due to federal anti money laundering laws no insurance carrier will accept cash, although some will accept money orders for quarterly payments.
- AGE Final expense is designed to be written for individuals between the age of 50 and 85, although a few companies will issue policies up to age 90. Remember that the older you are, the more expensive it will be. It is best to start sooner rather than later, not only to lock in your age but to lock in your health.
Types of Final Expense Insurance
LEVEL PREMIUM
Level premium is the cheapest and best value for final expense. This is the gold standard. If you can qualify for level premium, you have the best chance to save a lot of money on your insurance. You do not need an exclusive membership to qualify for level premium. Even if you are on prescription meds you may still qualify for level premium. If you qualify for level premium you are covered the same day the insurance company receives your first payment.
GRADED OR MODIFIED ISSUE
Graded (or modified) issue is the next level higher in cost for final expense insurance. This insurance is for some people who may have some underlying issues that would prevent them from qualifying for level premium. In addition to paying a higher premium for graded issue, there may be a reduced death benefit payout from 25% to 50% in the first year and 25% to 50% in the second year. Some carriers will reduce the death benefit up to 3 years. After this period, you are fully covered.
GUARANTEED ISSUE
Guaranteed issue final expense insurance is just that, guaranteed to issue regardless of your health. You can be confined to a wheelchair; perhaps you have had a recent stroke or heart attack, or perhaps you have late stage cancer. With guaranteed issue, you can still get coverage. This is the most expensive form of burial insurance, although some carriers play games with their products and some graded insurance can be more expensive than guaranteed issue. Consult with a qualified advisor to get the best price.
Guaranteed issue will always come with a “2 year blackout” period. If you die within the first two years, the insurance company will refund all premiums paid plus 10%. If you make it past two years, you are fully covered.
Protect Yourself
Don’t fall for hidden traps! There are many, many insurance carriers and not all have your best interests at heart. Mainly, don’t buy the first insurance that comes along. That company on TV that guarantees coverage for only $9.95 a month? That is guaranteed issue and will only buy you $1,000 – $2,000 of coverage. Why pay for guaranteed issue if you can qualify for level or modified premium?
Perhaps you have been told you can get $10,000 of coverage for only $13 per month. The truth is, if you are a 58 year old female non-smoker, you very well may be able to do that. However, this is one of those too good to be true cases. Ask your agent or representative if the premiums will ever increase (they will, every 5 years) or if the policy will ever expire (it will, usually at age 80 or 82). Also, that ad you saw for Level Benefit Term Life Insurance? Note that it says Level Benefit, not Level Premium. Don’t be misled!