Eventually, we all have to think about how we’ll pay for a loved one’s, or even our own, end-of-life expenses. When you sell final expense insurance, you can provide your clients with the peace of mind that comes with knowing they and their families are prepared for the future. You can also capitalize on a huge opportunity to maximize your book of business and create a generous new income stream! Ready to learn everything you need to know to start selling final expense insurance successfully?
Understanding the Basics
Nobody likes to think about their own death, but the fact of the matter is funerals and burials aren’t cheap. Depending on the situation and one’s personal preferences, they can actually cost thousands of dollars. In 2017, the national median cost of a funeral with a viewing and burial was $7,360, according to the National Funeral Directors Association. Final expense insurance can help someone ensure their last wishes regarding their end-of-life ceremony and final resting place can be carried out by the loved ones they leave behind.
What Is Final Expense Insurance?
Final expense insurance, also known as “burial insurance” or “funeral insurance,” is a type of permanent whole life insurance. Instead of providing income replacement for loved ones (like most life insurance policies do), final expense insurance is meant to cover the costs associated with the policyholder’s viewing, funeral, and cremation or burial. Legally, however, beneficiaries can often use the policy’s payout to pay for anything they wish.
Generally, final expense policies are issued to people ages 50 to 85, but they can be issued to younger or older individuals as well. This type of insurance often has a lower face value than other whole life insurance policies — usually anywhere from $5,000 to $25,000 — but death benefits can go as high as $100,000.
What costs final expense insurance can cover:
- Medical bills
- Transfer of remains to funeral home and/or cemetery
- Preparation of the body
- Caskets or urns
- Burial plots
- Use of facilities and staff for viewing and/ or funeral
- Memorial printed packages
- Other end-of-life expenses
In general, final expense insurance itself isn’t hard to learn, with low face amounts, low premiums, and simplified underwriting. Final expense appointments are generally short, and the target market and need for this product are both extensive.
The Types of Final Expense Insurance
There are four main types of final expense insurance: guaranteed issue, graded, modified, and level (preferred or standard rating). We’ll go more into detail about each of these product types, but you can gain a quick understanding of the differences between them via the table below.
|Type of FE Policy||Benefit for Accidental Death||Benefit for Non-Accidental Death||Underwriting|
|Guaranteed Issue||Guaranteed approval, no waiting period, full death benefit||Waiting period, death benefit is equal to return of premium + interest rate for a specified number of years||No underwriting|
|Graded||No waiting period, full death benefit||Waiting period, death benefit is equal to a percentage of the death benefit||Simplified issue underwriting|
|Modified||No waiting period, full death benefit||Waiting period, death benefit is equal to return of premium + an interest percentage declared at policy issue||Simplified issue underwriting|
|Level (Preferred or Standard Rating)||No waiting period, full death benefit||No waiting period, full death benefit||Simplified issue underwriting|
By and large, applications for guaranteed issue final expense plans are rather straightforward with no health-related questions. Carriers that provide these products will often limit issue ages, offer reduced face values, and modify the death benefits by offering return of premium plus an interest rate for the first two to three years of the policy. Many guaranteed issue final expense policies do not come with additional riders. The premiums on these products are usually the highest that you will find. You’re guaranteed coverage — but at the highest rate.
Typically, guaranteed issue final expense plans are issued to clients with severe or multiple health issues that would prevent them from securing insurance at a standard or graded rating. These health conditions may include (but aren’t limited to) renal disease, HIV/AIDS, organ transplant, active cancer treatments, and illnesses that limit life expectancy. Many times, these prospects have difficulty with performing activities of daily living (ADLs) or are in nursing home care. In addition, clients for this type of plan could have severe legal or criminal histories.
It’s important to note that some carriers will offer better issue ages — as low as 40 years old or as high as age 85 for guaranteed issue policies. Some will also allow higher face values, up to $40,000, and others will grant better death benefit conditions by improving the interest rate with the return of premium or lessening the number of years until a full death benefit is available. There are even carriers that will offer built-in riders, such as chronic illness and accidental death riders.
GRADED AND MODIFIED FINAL EXPENSE
Graded and modified final expense plans are very similar, but no two graded or modified final expense plans are the same. Some carriers will offer policies that have issue ages as low as 20 years old and up to 89 years old, with face values as high as $50,000.
Graded final expense policies usually have a two-year waiting period before the carrier pays the entire death benefit to a beneficiary. Some carriers don’t pay out a full death benefit on the graded policy until the fourth year. If non-accidental death occurs before two years, the policy will only pay a percentage of the death benefit. For example:
- If non-accidental death happens in year one, the carrier might only pay 30 percent of the death benefit.
- If non-accidental death occurs in year two, the carrier might only pay 70 percent of the death benefit.
- For a non-accidental death in year three or later, the carrier would probably pay 100 percent of the death benefit.
Modified final expense policies, similar to graded plans, look at health conditions that would place your client in a more restrictive modified plan. These may include recent alcoholism, angina, stroke, aneurysm, or cancer. With modified policies, there’s usually a two-year waiting period before the carrier pays the entire death benefit to a beneficiary.
If non-accidental death occurs before two years, the policy will only pay a return of premium plus a declared percentage interest. For example:
- If non-accidental death happens in year one or two, the carrier will return the paid premiums, plus 10 percent interest on those premiums.
- For a non-accidental death in year three or later, the carrier would probably pay 100 percent of the death benefit.
Graded or modified final expense policies aren’t only for older clients. Generally, you’ll find that clients who qualify for graded or modified final expense plans usually have less-than-perfect health and a specific health issue that is recent or chronic in nature and would prevent them from getting a standard or more traditional whole life policy. For instance, they may have chronic obstructive pulmonary disease (COPD), diabetes with high levels of insulin, or have had heart attacks in the past. Some products have specific health issues that will get preferential treatment from the carrier. For example, there are carriers that will issue policies to younger adults in their 20s or 30s who could have chronic conditions like diabetes.
LEVEL-BENEFIT FINAL EXPENSE OR SIMPLIFIED ISSUE TRADITIONAL WHOLE LIFE
Normally, level-benefit traditional final expense or simplified issue whole life plans have the cheapest premiums and the largest availability of additional riders that clients can add to policies. This type of product usually brings the most flexibility in the form of issue age and face value, and in some rare cases, participating dividends.
While typical final expense carriers have limits on age, there are carriers that view their traditional whole life products, not only for use as final expense, but as insurance policies available for all types of age groups, including juvenile, young adults, and clients looking for protection and investment opportunities. Traditional whole life insurance products can go up to $100,000 in a simplified format and can start at age 0, so these products can be very versatile to meet a client’s needs.
Unlike guaranteed issue, graded, or modified final expense plans, traditional final expense plans are typically for clients who are in good or excellent health. Depending on the insurance carrier, both a preferred rate class and standard rate class may be offered. A client in excellent health with no current prescription medications or health conditions may qualify for a preferred rate class with the lowest premiums possible. A client in good health — even with a few maintenance medications, but no significant health issues — may qualify for standard rates. Additionally, since these types of policies can be written outside of a true final expense need, an illustration may be required to accompany an application.
Note: In a “participating policy” (also known as a “par” policy) the insurance company shares the excess profits (divisible surplus) with the policyholder in the form of annual dividends. Typically, these “refunds” are not taxable because they’re considered an overcharge of premium (or “reduction of basis”).
How Final Expense Insurance Works
In general, final expense insurance works similarly to other forms of life insurance. If your client applies for a policy, they may or may not be approved for one, depending on the plan they’ve applied for and any other qualifying factors for it. If your client purchases a policy, they’ll have to name at least one beneficiary. When your client passes away, their final expense policy will pay out to any living beneficiaries they’ve designated. Let’s take a quick look at how final expense premiums, underwriting, beneficiaries, and payouts function.
PREMIUMS AT A GLANCE
As with other insurance products, what your clients will pay for a final expense insurance policy depends on the carrier, plan, and state. Your client’s health, gender, and age can also be huge factors in determining their premium(s). Similar to other life insurance policies, if your clients smoke, use other forms of tobacco or nicotine, have pre-existing health conditions, or are male, they’ll likely have to pay a higher rate for a final expense policy. Moreover, the older your client is, the higher their rate for a plan will be, since insurance companies believe they’re taking on more risk when they offer to insure older clients.
As you’re selling final expense policies, you’ll see there are three main types of premiums for these plans: single, limited, and lifetime. Single-pay policies require policyholders to pay the entire cost of the policy upfront, while limited-pay policies allow the policyholder to pay for the policy over a set number of years (usually 20 or less). With lifetime-pay policies, policyholders pay a monthly or annual premium for the policy until they pass away or decide they no longer want to continue the policy.
One nice thing about final expense insurance premiums is that, once your clients have purchased a policy, their rates will never increase. That’s because final expense plans have level (or “fixed”) premiums. The policy will also remain in force as long as the policyholder pays their premium(s).
AN INTRODUCTION TO UNDERWRITING
While many other life insurance policies may require medical exams, parameds, and attending physician statements (APSs), final expense insurance policies do not. That’s one of the great things about final expense plans. At most, applicants have to answer health and prescription drug questions via paper and/or complete a telephone interview. In other words, there’s little to no underwriting required!
That being said, there are two main types of underwriting for final expense plans: simplified issue and guaranteed issue. With simplified issue plans, clients generally only have to answer a few medical related questions and may be denied coverage by the carrier based on those answers. Conversely, guaranteed issue plans generally don’t require the applicant to answer any medical-related questions. The applicant is guaranteed approval for a guaranteed issue final expense policy as long as they qualify for it. The diagram below outlines the differences and similarities between simplified and guaranteed issue plans.
Note: Traditional whole life plans that offer simplified issue underwriting will have more extensive underwriting than that for standard, graded, or modified final expense plans.
Even though underwriting isn’t that intense for final expense plans, it’s still important for agents to ask their final expense prospects about their health history and prescription medications. For one, this can allow agents to figure out what type of plan underwriting would work best for a particular client. And two, it helps agents narrow down their client’s options. Some carriers may disqualify clients for coverage based on what medications they’re taking and how long or why they’ve been taking them (i.e., maintenance or treatment). Other carriers disqualify clients or charge them higher rates if they have or had diabetes, chronic obstructive pulmonary disease (COPD), cancer, or heart attack(s). The number of years that carriers look back on applicants' medical histories for certain conditions varies, but it’s often two to five years.
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