One of the fastest growing segments of life insurance sales these days is “final” or “last” expense insurance. “All you have to do is answer four simple questions!” (No annoying agent.) Sounds good, right? Everyone should have some of this stuff to take a financial load off of the adult children when a person dies. But, let’s take a look under the hood and see what’s driving this buggy:
1. Bottom line – if your candidate for final expense insurance is healthy and willing to take a qualifying paramedical exam (at no cost) and wants a face amount of at least $25,000, go for fully underwritten guaranteed no lapse UL. If they want less than $25,000, take a look at fully underwritten whole life. You could save your client hundreds – maybe thousands – of dollars over time.
2. Final expense insurance is typically a whole life or modified whole life policy that can be underwritten for simplified issue (SI – no medical exam) in face amounts as low as $2,000 up to around $300,000. The problem with it is that the cost-per-thousand dollars of life insurance is very high because of adverse selection. “Standard” can be the same rate (premium) as a “Table H (8)”.
3. Final expense insurance could be the right tool for the job IF your candidate for insurance a) 80 years old or younger, b) only wants the absolute minimum face value, and/or c) has health problems, and/or c) doesn’t want to answer a lot of personal medical questions or give a blood or urine sample.
4. Not all major insurance carriers offer final expense insurance. (Transamerica Life has a good contract.) Some carriers specialize in it. (Be careful of those.)
5. Affinity groups (AARP, Sam’s Club, Costco, for example) offer final expense life insurance, either as a whole life or term. I advise against the “affordable” term. After a level-premium period, the costs increase. Since you can’t know how long your client might live, the term plan might become too expensive and allowed to lapse with no value. There are usually no conversion privileges with final expense term.
6. You might be able to sell a particular affinity group’s final expense plans, but it’s not likely. This is usually an over-the-phone sale made by dedicated telemarketers.
Often asked question: “Is burial insurance the same as final expense insurance?” Answer: Could be, but probably isn’t. Burial insurance is usually part of a funeral plan that takes care of the whole event from start to finish and either provides the promise that the insurance purchased will guarantee the entire price of the funeral into the future, or pays out only a small benefit to the designated beneficiary – often $1000 or less.