Final expense insurance is available. A whole life insurance policy that is only a little death benefit is much easier to be approved for. Final expense insurance, also known as “funeral insurance,” is also known. Burial insurance Insurance companies use these terms to market small whole-life policies. Face value (Death Benefit): $2,000 to $50,000.
The only difference between final expense and regular life insurance is that the insurers sell smaller policies to make them more affordable. Richard P. Sabo, a financial advisor and expert in insurance fraud in Gibsonia (Pa.) says that final expense insurance includes a death benefit to pay for expenses such as funerals, memorial services, embalming, caskets, and cremation. The death benefit can be used by beneficiaries for anything, including property taxes and vacations.
Sabo says that final expense insurance is sold to older people who start to think about funeral costs. Sabo adds that some people have existing life insurance policies that can be used to pay final expenses. This is another situation in which final expense insurance might not be necessary.
What is Final Expense Insurance?
Let’s suppose you are retired and no longer have life insurance through work. Also, you don’t have enough money to support your family and you are concerned about what financial burdens you will leave behind for your spouse or children when you pass away.
Contact a life insurance agent to begin the application process. This includes answering some basic questions about your health. The death benefit is excellent, but premiums are prohibitively high due to your age and poor health. They don’t offer policies with enough death benefits to allow you to afford the premiums. You might think you are unable to afford life insurance at this point.
This is why final expense life insurance was created. Anthony Martin, the CEO, of Choice Mutual, an insurance brokerage firm that offers final expense life insurance, says, “The insurance companies designed these policies to absorb some serious medical risks.” This means that seniors can still get policies, even if they are in poor health.
Smaller Death Benefits
As Sabo noted above, the death benefit for final expense insurance is smaller making premiums more affordable. The policy is permanent. Your heirs will receive the death benefit you choose, regardless of when you pass away, provided you have paid your premiums.
Although it may not cover all expenses, such as paying off large mortgages, final expense insurance will help your loved ones to pay bills. These bills are directly related to your death. They’ll be unable to pay them without your income.
If your family has other means to pay for your final expenses, it is worth reconsidering whether you purchase a policy. Below is a table that highlights the benefits and drawbacks of final expense insurance. The table also shows that the moniker is a marketing term.
Pros
- For applicants in poor health, policies are available.
- The application process does not include a medical exam. It only includes a questionnaire and a prescription history.
- Many policies have premiums that never rise (this holds for all types of life insurance).
- The death benefit of your policy cannot be reduced unless the insurer can borrow against its cash value or request accelerated death benefits. This also applies to other types of life insurance.
- The death benefit can be used by your heirs for any purpose. This is a standard feature in life insurance.
- As long as you have no term policies (also a standard feature in whole-life insurance), the death benefit will be guaranteed.
- The death benefit is non-taxable, also a feature of life insurance.
- A policy that has a death benefit of less than $50,000 can be purchased. This is what some people need and can afford.
Cons
- Insurers may use misleading or confusing information in marketing materials. This is true also for other types of life insurance.
- In their marketing materials, some insurers may not provide sufficient information about these policies (as is the case for other types of life insurance).
- The policies are relatively low in death benefits so you may lose money if your beneficiaries receive a higher death benefit. You also lose money if you don’t pay premiums while the policy is in effect.
- People let their policies expire, meaning that their heirs will not receive a death benefit. This is also true for other types of life insurance.
- Final expense insurance companies use scare tactics that are based on high funeral costs. They play on seniors’ fears about burdening their loved ones.
- Even though consumers with good health may be eligible for coverage, some insurers will steer them toward more restrictive and costly policies.
Understanding final expense insurance
Like any other type of life insurance premiums for final expenses, insurance is based on your age and your health. Where allowed by law, they might also be influenced by your gender. Higher rates for the same amount of insurance will apply if you are older or less healthy. Because of their shorter life expectancy, men tend to pay more than women for insurance. You may be eligible for a lower rate depending on your insurer if you don’t smoke.
Insurance companies may offer final expense policies to anyone from age 15 to 85. You may need to be at least 45 years old to apply for a policy. You may not be eligible for the largest death benefit, but you might get a smaller one if you are older. While policies may be up to $50,000 if you are younger than 55, they will only increase to $25,000 if you reach 76. Some insurers offer the same maximum benefit regardless of age.
Final expense insurance, as mentioned previously, is a type of whole life insurance. Permanent life insurance policies, such as whole life policies, are much more complicated than permanent life insurance. The premiums and death benefits cannot be increased once you have your policy. A whole life policy is not like a term policy. It does not expire once you turn a certain age. You can also build cash value with a whole life policy, which you can borrow against. However, any unpaid loans when you die will decrease the amount of money that your beneficiaries receive.
Final expense insurance does not require you to undergo a medical exam. The insurance company will also not be able to access your medical records. You will need to answer certain health questions. Due to the health questions, not all people will be eligible for a policy that provides coverage starting on day one.
Guaranteed Issue: Special type of final expense insurance
Only applicants with serious health problems will be eligible for policies that do not require medical exams, medical questions, or records. Guaranteed issue policies have a two to three-year waiting period before benefits are paid.
The policy’s death benefit will not be paid to beneficiaries if the insured dies within the waiting period. The beneficiaries will receive the policyholder’s premiums back plus interest at a rate of 10%. Read our article on guaranteed-issue life insurance.
Warning
New York Life now sells term life insurance policies that provide $10,000 to $50,000 coverage. This policy is sold in conjunction with the AARP. Although the coverage is comparable to a final expense policy, the term policy expires at 80 and has rising premiums. The policy can be canceled before you can pay your final expenses and any financial needs of your beneficiaries.
Real-Life Example of Final Expense Insurance
We found that a $25,000 final cost insurance policy with immediate coverage and health questions for a 68-year-old Californian man might cost $156 to $180 per month. A policy without health questions (a guaranteed-issue policy with a waiting period) would cost $234 to $345 per month.
Let’s suppose that a man with congestive heart disease cannot buy a policy with guaranteed issues and a waiting period of two years. He will have spent $8,280 on premiums if he purchases the most expensive policy, with a $345 monthly premium. If he dies in the three-year waiting period, he will leave his beneficiaries with a benefit of $8,280.
A company that sells only guaranteed issue policies should not be sold to people who are in good health. They will have to pay a higher price and their coverage will not begin on the first day. According to Sabo, they may not want to purchase a final expense policy. You must be healthy enough to be eligible.
Sabo states that a non-smoking 68-year-old male from California could obtain a $25,000 guaranteed universal policy for $88 per month. The policy will expire at 100 so it provides less coverage than a whole-life policy. When weighing the pros and cons of a trade-off such as this, you should consider your budget and health.
Guaranteed universal coverage, just like whole life, doesn’t expire as long you have a policy that covers your entire life. For maximum protection, you can purchase a policy that covers you up to age 121. You can also buy coverage up to age 100 if you are trying to save money or don’t require coverage beyond age 90. Because it does not have a cash value component, it is less expensive than final expense insurance.
Why ‘Regular Life’ Insurance is Better
Sabo says, “If you have the money to purchase a policy that meets company minimum death benefits, you are better off buying regular insurance.” Martin agrees. Martin agrees.
Higher face amounts can lead to higher premiums that some people cannot afford. However, the cost per $1,000 of coverage will be lower than a final expense policy. Many of his clients, who could qualify for a traditional whole- or term policy, choose to go final expense. They only need $20,000 or $30,000 in coverage and the claims are usually paid quicker than those on larger policies.
Sabo says that life insurance companies have increased their minimum death benefits from $50,000 to $50,000 to avoid taking too much time processing applications and underwriting smaller policies. He says that some companies are specialists in final expense insurance. They have developed a system and underwriting to sell small policies and make less profit, but they do volume.
In-Between Option – Graded Benefit Final Expense Insurance
The third type of final expense insurance is a graded-benefit policy that has a partial waiting period. This policy may pay between 30% and 40% of the death benefit to the insured if they die within the first year of the policy being in force. It might also pay 70% to 80% to the insured if they die during the second year of the policy being in force. The policy will pay 100% of the death benefit if the insured dies within the first two years.
You might be eligible for a graded benefits policy, even if your health condition is only semi-serious. You might be in remission after a diagnosis of cancer, have had congestive heart disease, or have been treated for drug or alcohol abuse within the past 24 months. A more serious condition like a terminal illness or being under treatment for cancer would not allow you to be eligible for a guaranteed-issue policy. You will have to wait at most two years before you can get any coverage.
Martin says that no single insurer can offer the best final expense insurance. To find the best insurance company for you, it is important to compare offers from different companies. These companies will most likely offer the lowest rates. Another way to lower rates is to apply for policies that have health questions.
You don’t have to give a wrong answer to every company. Some companies may offer immediate coverage, with higher premiums or guaranteed issue policies.
Sometimes, the cheapest policy that you are eligible for is the best. Your broker can help you choose the best companies to work with if they are an experienced life insurance broker that sells policies from many insurance companies.
Martin says that some companies provide better service than others for applicants and policyholders. Martin says that some people will choose the least expensive option, even though the customer service may not be the best.
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