Occasionally someone will ask me a question about insurance. More specifically, they ask about types of insurance and which is the "best" for them. After thinking about it, I have noticed that a lot of the same questions are asked, so I thought I would take the opportunity to help everyone with some broad stroke answers. Keep in mind that these are fairly generic answers and if you need a more specific answer to your situation, let me know.
1. What is final expense insurance?
Final expense life insurance is exactly what is sounds like. It is designed to pay for expenses associated with dying, specifically funeral costs. A funeral can cost around $10,000, but that is just an average. Be aware that there are other costs associated with death, such as a hospital stay. I recommend to our clients that they insure themselves for maybe $15,000 instead, just to make sure their loved ones are not having to come up with those unexpected expenses out of their own pockets.
Most final expense plans are comprised of whole life insurance, which can be expensive. Since whole life insurance typically builds cash value which is unnecessary for what the need is, you may be able to find another alternative. If you are healthy and can make it through a medical exam, you may want to consider a guaranteed universal life (GUL) policy. These policies don't build any cash value, but can be a lot less expensive. GUL's are guaranteed to be there for you as long as the premiums are paid.
Yes! For some reason people think that putting life insurance on a child is a horrible thing. "I just don't want to think about my child dying" is the common refrain. Neither do we, but it does happen. As I mentioned in a recent post, it is sad enough watching parents suffer through the loss of a child, but it's just as bad attending a fund raiser to pay for the funeral.
A permanent policy that builds cash value is appropriate in this case. And it can be very affordable since the child is young and healthy (I assume most kids are "non smokers"). And when your child is older you can transfer the ownership of the policy to your now adult child, who can continue to pay the low premiums, or cash it out if they need to.
A side note: Most insurance companies frown on large face amounts for children's life insurance. Generally speaking, $25,000 or $50,000 is more than enough and the underwriters will ask a LOT of questions if the policy is for more than that amount.
3. Do I have to keep my beneficiaries the same?
Absolutely not! As a matter of fact I recommend you review your life insurance every few years. Part of that review should be updating your beneficiaries. Changes in circumstances may lead you to decide to change your beneficiaries. Perhaps your current beneficiary has pre-deceased you, or your child isn't as responsible as you had hoped for.
I had one client who was widowed and her only child was incarcerated. She felt as if she was paying for insurance that would benefit no one. I asked her if there was a charitable cause that she was interested in and she said her church was always in need. We managed to change the beneficiary to the church with enough put aside to cover her final expenses.
Keep in mind that beneficiary changes can be made at any time, but some companies do require a "wet" signature, which means you may not be able to do it over the phone or online.
If you have questions about life insurance, drop me a note in the comments section. And if you would like a quote you can click here and run your own. In the meantime, please stay healthy!
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!