Two of the most frequent questions asked in the senior insurance industry are “What is a final expense insurance policy?” and “Do I need a final expense insurance policy?”
The first question is easy. Let’s tackle that.
What is a Final Expense Insurance Policy?
Simply put, a final expense insurance policy is a whole-life insurance policy with simplified underwriting with a relatively small face value amount that may have reduced benefits during the first two years of the contract.
The three terms to break down here are:
- Whole Life Insurance Policy
- Simplified Underwriting
- Relatively Small Face Value Amount
- Reduced Benefits During for a Set Time Period and Guarantee Issue
Final Expense Insurance is Whole Life Insurance
Whole life insurance is a contract between an insurance company and a policy owner which says, in very simplified terms, the insurance company will pay the designated beneficiary or beneficiaries the policy’s face value at the owner’s death. If the policy conditions are met this will be true.
Policy conditions, among other things, include timely payments and no fraud.
Whole life means the policy will remain in force during the owner’s whole life. Once approved, your payments will never increase, and if you make timely payments, the policy will not cancel.
Final Expense Insurance Has Simplified Underwriting
Simplified underwriting is you answering a basic set of questions instead of having to have extensive physicals, doctor endorsements, and lifestyle investigations.
Underwriting is what insurance companies do to evaluate the risk of insuring any individual. With simplified underwriting for final expense insurance, a field agent will do a basic interview with you to ask these questions and then forward the information to the insurance company. Based on these questions the insurance company will either issue or decline the policy, or they may offer you a counter proposal of insurance for a lesser face value amount or different benefit structure.
Final Expense Insurance Has Relatively Small Face Value Amounts
Final expense insurance is designed to cover the last expenses of your life. Things like funeral arrangements, last medical bills, and some funding for short term bills for your survivors as they settle your estate.
Face values can range upwards of $5,000.00 and generally go no higher than $50,000.00.
With the typical cost of a funeral going about $10,000.00, you can see why final expense insurance face values are not extensive, but important. The most troubling thing for survivors to do is come up with the money to satisfy your final wishes giving you the honor you deserve in the short time they’ll have working with a funeral home.
Final expense insurance is a way for you to plan what you feel appropriate for your funeral and final wishes.
Final Expense Insurance May Have Reduced Benefits for a Set Time Period
While underwriting is simplified for final expense insurance, there may be instances where you may choose to have reduced benefits paid to beneficiaries for a set time period. Generally, this time period is two years, but it can vary.
This situation can occur when even simplified underwriting means a final expense policy will be declined. In this case, the final expense policy can be in the category of “guarantee issue”.
The guarantee is you’ll be issued a policy with very little underwriting. But the policy will pay reduced benefits within the set time period. Reduced benefits are defined in the final expense insurance product and can be simply the return of premiums paid.
Do I Need a Final Expense Insurance Policy?
You may not. And we will talk about the need for final expense insurance in the next post “Do I Need a Final Expense Insurance Policy.”