Final Expense Life Insurance – An Overview

Let’s talk about life insurance. Maybe you are among the lucky few who thought ahead and purchased life insurance while you were young and healthy. Maybe you’d just gotten married, had a baby, took out a mortgage to purchase your first home. You had the foresight to provide piece of mind for your family and to lock in premium rates for 20, 30, 40 years. On the other hand, maybe you are now in your 60s or 70s, thinking about your own mortality. Maybe you’ve been living with diabetes or recovered from a stroke or had a stent put in to keep your heart functioning. You’ve never thought about life insurance, or thought it wasn’t for you, or thought you couldn’t afford it, but now you’re living on social security or disability or life savings, and are keenly aware that you don’t have readily available funds to pay for your own funeral or cremation, much less to leave a bit of a nest egg or legacy to your children or grandchildren. Don’t despair. What I am here to tell you is that while you may not qualify for a traditional term policy, there is an available insurance product that will give you and your family much needed peace of mind as you enter your twilight years. And that product is called Final Expense or Burial Insurance.

In essence, these are Whole Life Insurance policies—which, as the name indicates, stay in force for the remainder of your life, provided you continue paying your premiums—and are geared to individuals between the ages of 50-85. The benefits available under these policies range from $2,500-$50,000, the proceeds paid to you beneficiaries are tax free and, despite being marketed as Final Expense or Burial Insurance, the benefits may be used by the beneficiaries for any legal purpose, not just to pay for your burial or cremation. A medical exam is not required in order to obtain coverage and these policies are offered by several well-known companies, such as Aetna, AIG, American Amicable and Guaranteed Trust Life. These policies are very affordable, even to those on a fixed income. But, it is important to understand that not all policies are created equal and the amount and type of benefits you may qualify for will depend, in large part, on your age, the state of your health and whether or not you are a tobacco user. If you’re in relatively good health—and this, believe it or not, includes having Type II diabetes, even if you are on insulin—you may qualify for what is referred to as “level” or immediate coverage. Level coverage simply means that if the insurance company approves your application—and the application takes approximately 15-20 minutes to complete, and can be done entirely over the phone—you are immediately covered, the moment your first premium payment is drafted from your bank account and the insurance carrier issues the policy. In other words, if you qualify for level coverage, and pass away one month after purchasing the policy, the insurance company should—and likely will—pay the full face value of the policy to your beneficiaries. Keep in mind that insurance companies have up to two years after issuing a policy to try and rescind it. This happens, most often, when the applicant is less than truthful about the state of his or her health during the application process. The insurance company pulls medical and prescription drug information on you from the Medical Information Bureau during the underwriting process, but as long as you’re exceptionally honest and truthful when applying for insurance coverage, there should not be any issues with benefits being paid to your beneficiaries, even if you pass away within two years of the policy’s issuance. On the other hand, if you misrepresent the state of your health when completing the insurance application, whether intentionally or not, you run the risk of having the policy voided. Honesty is always the best policy when it comes to life insurance.

If you don’t qualify for level coverage, and some people won’t because of the state of their health, don’t despair, because you may qualify for what is called “graded” coverage. If you suffer from certain medical conditions—for instance, if you have cystic fibrosis, are being treated for Hepatitis C, have Lupus or Multiple Sclerosis, are on supplemental oxygen for COPD, among others—insurance carriers will still cover you, but the benefits paid out to your beneficiaries will depend on when you pass away following issuance of the policy. While every insurance carrier differs in the way it pays benefits under graded policies, in general, and insurance carrier will pay something like 30% of the benefits available under your policy if you pass away within one year of the policy’s issuance, 70% of the benefits available under the policy if you pass away between year one and year two and 100% of the benefits available under the policy if you pass away two or more years after the policy issues. So, while the immediately available benefits are lower under a graded policy than a level policy during the policy’s first two years, the benefits your beneficiaries will receive are still greater than what you can otherwise squirrel away through savings. And, if you live longer than two years from the day your graded policy is issued, your beneficiaries will receive full benefits, as if you had a level policy to begin with.

Finally, even those suffering from serious medical conditions, such as HIV/AIDS, are receiving ongoing dialysis or are preparing to be hospitalized, can obtain life insurance coverage. These policies are referred to a “Guaranteed Issue” or GI policies and typically offer maximum benefits of $25,000. Here is how GI policies work. No one is denied coverage. But, benefits are only paid out by the life insurance company if you live more than two years from the date the policy goes into effect. You continue to make your premium payments and, if you live past the second anniversary of when the policy was issued, the life insurance company pays the full face value of the policy to your beneficiaries. However, if you pass away within the two year period, then the insurance company returns 110% of the premiums you’ve paid up until the time of your death to your beneficiaries. No other benefits are paid under the policy. So, as you can see, coverage is available to just about everyone, the only question being whether you qualify for level coverage, graded coverage or guaranteed issue coverage. Also keep in mind that these whole life policies have a cash surrender value. The longer you pay your premiums, the more cash surrender value your policy builds up. You can borrow against this build up or cash in your policy (before your death) and receive whatever cash surrender value has accumulated over the period you kept your policy in place. And, for every insurance policy you purchase, you also have a “free look period,” which is typically 10-30 days from the day you receive a copy of your insurance policy (the actual number of days will be on a notice attached to your policy), during which you can cancel your policy and receive your first premium payment back. There are also other great benefits that are available for purchase with your policy—called riders—that are relatively inexpensive and can be purchased at the same time as your policy. A popular rider involves obtaining life insurance coverage for your grandchildren. One of the great benefits of the “grandchild” rider is that your grandchildren can then apply for their own term insurance coverage, once they turn 21, without having to show proof of insurability.

Finally, many of these life insurance carriers cater especially to those who are on social security or disability income—drafting premium payments directly from your bank account on the day you receive these government benefits, so that you don’t run the risk of missing a premium payment and having your policy lapse. I am a big proponent of life insurance and believe it is never too late to give your family the peace of mind it deserves. For any additional questions, to discuss your options or obtain a no-obligation quote, visit my website at www.feins.life or call or write me at (469) 817-9650 or paul@feins.life. For those under 50, especially those who have younger children and/or mortgages, consider obtaining term insurance for a period of 20-40 years. I also sell term insurance and would be happy to discuss your options with you.