Wednesday, July 29, 2020

Do I Need Final Expense Life Insurance?

The life insurance industry has tried to get one message across for years. That message is that we are all going to die and when we do, we can ease the financial burden for our family and loved ones through the purchase of a policy. With this in mind, we have to acknowledge that everyone has a different situation. Some are married, some are single, some have more assets than others, and the list goes on. A single mother struggling to make ends meet will have a different set of needs than an heir to a large portfolio of stocks.

One of my pet peeves is when so-called "financial experts" go on television or write a book giving generic advice, like "buy term and invest the difference". Again, this advice may not be suitable for everyone. In a previous post I compared this to the doctor who prescribed the same medication for all ailments, despite knowing that it wouldn't work for everyone. 

Knowing this, there are times when someone needs to purchase what the industry calls "final expense" life insurance. The goal of these policies is to help pay for funeral expenses and the costs of services related to death, like being in the hospital beforehand. 

Most of the final expense policies sold are marketed to older people who are not in great health. Because of this, some are sold as "guaranteed issue", which means there are no health questions. The risk to the carrier is translated in higher rates and some limited benefits. 

An example of this is the graded benefit feature, which means that if the insured dies of natural causes (not an accident), the policy will only pay back the premiums, plus a small amount of interest. For some people, this is the best they can do as their health is questionable. 

A few years ago a friend of mine in the Charleston, SC area had cancer which was in remission, but then came back again. He took out a final expense plan just in case, and soon his situation worsened. Unfortunately, he passed away in the 20th month of the policy. His widow received a refund of the premiums plus some interest. With that being said, she was fully aware of the situation because the agent had explained it fully and clearly at the time of application.

I try to warn clients about commercials they see on television for final expense products. One in particular claims that a policy can be purchased for $9.95 a month. They do mention, in a quick and quite sneaky way, that the premium is "per unit". A unit is life insurance jargon for $1000. With this in mind, a $10,000 policy, which would cover most funeral costs, can have a premium of $99.50 a month. 

Keep in mind that if someone is healthy and hasn't waited too long to purchase a policy for their final expenses, they could qualify for a cheaper policy, like Guaranteed Universal Life (GUL) coverage. A GUL generally won't build cash value, but that isn't what people are buying it for. They just want to lock in on a good rate and not put a financial burden on their families. 

If you have questions or would like information about the different types of coverage you may be eligible for, let us know. You can even arrange a time for us to call you with our online calendar. In the meantime, stay healthy and subscribe to this blog for future posts. 

Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life and disability insurance coverage. He's also is a professional speaker helping sales people be more productive and efficient and has spoken to professional and civic organizations throughout the Southeast. And please subscribe to this blog!

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