Is Final Expense Insurance Right for You?
In this blog post we want to discuss Final Expense Insurance. This blog will describe the different types of final expense life insurance, why it’s so popular, the differences between final expense and burial insurance and who should consider final expense insurance.
Why Buy Final Expense Insurance?
The objective of final expense insurance is to cover final expenses, it’s that simple. Final expenses include the cost of a funeral and all that goes with it, along with any final medical bills or other debts. It’s also common for people to use final expense insurance to leave a cash estate for their children or spouse.
Most people are surprised to learn how much a typical funeral costs. The average price of a very basic funeral, not including embalming, headstone, burial plot, flowers, death certificate was just $708 back in 1960. Today the same basic funeral is approximately $7,000. When we add in the cost of embalming, a headstone and burial plot the cost doubles to an average of $14,000. That’s right, on average it cost $14,000 to bury a loved one today, and that cost increases every year.
For those who do not have insurance in place to cover these expenses, the burden of paying these final expense bills will fall on their children or their surviving spouse. Few people want to put their family through such a financial strain, especially when they are grieving for their loss, a time when they are most vulnerable.
Final Expense insurance relieves the financial burden of paying for final expenses. The check is typically delivered to the designated beneficiary very soon after death, providing comfort that the deceased’s final wishes can be met without a financial strain on the surviving children or spouse. No one will have to worry or argue about where the finds will come from to pay for the funeral and all that goes with it.
Different Types of Final Expense Insurance
Final Expense insurance is a small life insurance policy with a death benefit from $5,000 to $30,000, and offered to people between the ages of 50 and 85-years old. The policy is typically a whole life insurance policy that can be obtained without a medical exam. However, there are usually medical questions that must be answered in order to determine if the insured can qualify for the final expense coverage. What is great about the policy being whole life is that coverage will continue for as long as the insured pays the premium.
It’s important that the final expense policy be a whole life, permanent policy and not a term insurance policy. One of the reasons final expense insurance is so popular today is that too many individuals purchased term insurance in the 1980s and 1990s that has expired or become cost prohibitive while they are still alive. The result has been a lot of seniors left without enough insurance coverage to cover their final expenses.
In general there are two different types of final expense insurance; Level Whole Life and Graded Whole Life. The Level Whole-Life policy is very simple to understand. It’s plain vanilla life insurance. It has a fixed premium, your premiums will never increase. In addition, it offers a fixed life insurance benefit; your insurance benefit is 100% of your death benefit coverage from day one. It never decreases. As long as you pay your premiums your life insurance coverage continues and never changes.
Graded Whole Life is different in that your coverage is NOT 100% from day one. These policies are designed for people whose health condition is poor and they may not be able to get life insurance otherwise. The death benefit for the first two or more years is typically limited to just the premium paid plus a small amount of interest. It’s not until the third year or beyond that your beneficiaries receive the full benefit. For example; let’s say that on January 01 of 2014 you purchased a final expense policy that is a two-year Graded Whole Life policy with a $20,000 death benefit. If you were to die anytime between January 01, 2014 and January 01, 2016 your beneficiaries would only receive the amount you paid in premiums, plus a small interest. With a two-year Graded Final Expense Policy you must live past the first two years of the policy for your beneficiaries to receive the full death benefit. When we consider that the purpose of insurance is to transfer the financial risk of an event from one person to an insurance company, the graded final expense policy does not transfer the risk for the first two years of the policy. The insured’s beneficiaries are still at risk until after the graded period.
Some Graded Final Expense life insurance policies add an accidental death insurance clause in order to make the prospective buyer feel more comfortable with purchasing the policy. The accidental death clause may pay the full death benefit from day one of the policy if, and only if the insured dies by a covered accident, not by natural causes or a medical event. Unfortunately, for people over the age of 45, death by accident is unlikely. Insurance companies love to sell accidental death insurance to people over the age of 45 because the odds of having to pay the benefit are very small.
Lastly, while we specialize in life insurance with living benefits and prefer to offer those policies when they are available, to the best of our knowledge there are no final expense policies that offer meaningful living benefits beyond the cash value you accumulate. Hopefully that will change soon.
Who Is Best Suited for Final Expense Insurance?
For many seniors, one of the first hurdles in purchasing life insurance is getting through the results of a medical exam. Few of us have reached our golden years without some form of chronic or critical health issue in our past. That is why Final Expense insurance is typically offered without the need for a medical exam, it eliminates one of the most significant hurdles right off the bat. However, that also means that the life insurance is priced as if the insured has some medical history. For the minority of seniors who have been blessed with superior health, a regular whole life insurance policy that comes with a medical exam may be more cost effective.
Of course, you will still have to answer some medical questions to qualify for a level final expense policy. Those with the most severe medical history may be best suited for a graded final expense policy as described above. The graded feature reduces the risk to insurance company that the insured is already on their death bed by requiring they survive at least the first two years of the policy life.
Choose Your Policy Carefully
It is also important to note that each insurance company treats medical conditions differently. For example, some insurance companies shy away from consumers with diabetes. Other insurance companies have no trouble writing an insurance policy on a diabetic as long as their condition is controlled by insulin at 50 units per day or less. Still others do not even ask that much, and are only concerned if a diabetic has had other complications within the past two years.
There are many other examples and it is for this reason that we encourage people to use an independent agent when shopping for final expense insurance. A captive agent, one that works for an insurance company, can only offer insurance from the company they work for. The independent agent can search from all the final expense policies available in your state and find the one that is the best value and best rate for you. A good experienced independent agent will be transparent and show you the rates offered from different companies and offer advice on which company is best for your particular situation. The objective is to find the best insurance company that offers the best insurance rates for you, so that you can be assured that you made the right choice for you and the family that survives you.
Shield Insurance Solutions is independent, not tied to any specific insurance company. Our goal is to find the best insurance company, best insurance rates and policy for you. We specialize in living benefit life insurance and work with nearly 100 different insurance companies in order to find the right policy at the right value for you. We are transparent and have been in the financial services industry since 1984. Our life products include Whole Life, Universal Life and Term Insurance, mortgage protection insurance and final expense insurance. As independent agents, we work hard to find the best life insurance company for you, with the best life insurance rates and value. We are based in Jupiter and Palm Beach Florida and licensed in almost every state. If you are shopping for a life insurance quote, we can show you what many of the top insurance companies will offer. The price differences will amaze you. Visit www.ShieldInsuranceSolutions.com to get a free life insurance quote comparison, or call us at (800) 847-9680.