4 Reasons Why People Buy Final Expense Life Insurance

Life insurance is a tough space to navigate. There are hundreds of companies and thousands of products to choose from. Which policy type is the best for you depends on a lot of different factors and we always suggest consulting an advisor before making a decision. Today we are going to review one of the most common forms of life coverage, final expense.

Final expense is a permanent life insurance product. That means as long as the premiums are paid, it will never expire. It's primary function is to serve the senior market, typically ages 40-80, by helping the family pay for end of life expenses such as a funeral or memorial service. For a more thorough explanation of final expense check out What is Final Expense Insurance.

Relative to term life insurance, final expense cost quite a bit more. So why do so many clients choose final expense when they could buy more coverage for less money with a term? Lets take a look.

1. End of life costs are expensive.

Let's start with the obvious: burying our loved ones can be really expensive. The last thought on your mind when you've experienced a loss should be finances. Unfortunately, that is often exactly what happens. According to the National Funeral Directors Association the average funeral costs is $7,640, depending on the options the family chooses. That may not seem like an incredible amount of money but I would bet that you know quite a few people that don't have $8,000 set aside that they don't have any plans for.

The death benefit does not exclusively have to go toward funeral costs. Technically the beneficiary of the policy can spend the money however they like. But there are usually other costs to consider aside from just the funeral. Proceeds from the policy could be put towards hospital bills (there are usually some lingering medical bills if the insured is older), travel costs for family members and much more.

2. You don't need a lot of coverage.

Let's say you are 35 years old. You have been married for seven years, you have two beautiful young children, and you just bought your first home last year. You have a lot going on. Should you die unexpectedly, you have a lot of financial obligations that your spouse now has to take on all alone. You have 29 years worth of mortgage payments, your income, and maybe college funds for the kiddos to consider.

A $15,000 final expense policy simply won't cut it in this case. You would need considerable more coverage to make sure your family was secure. Now lets fast forward 30 years. You just made your last mortgage payment, the kids have kids of their own, and you are retiring next year. Very different situation.

Aside from a few medical bills to consider, you are largely out of debt without many large financial obligations going forward. What do your insurance options look like now? Well you've likely aged out of a lot of term policies. If not, they usually are only for 10 years, and that is if you are in good enough health to qualify. In this case, a $20,000 final expense policy would likely make more sense. It would cover the cost of your funeral plus have a little left over for the grandkids.

3. You can lock in your premium cost.

Most final expense policies come with level premiums. That means the price you pay today is the price you are going to pay forever. That can be a huge benefit for you as you grow older. A term policy will certainly save you money on the front end. However, as you get older and your term policy ends, you will end up paying a higher premium each time you renew the policy. With a final expense policy your cost is higher in the beginning but it never changes, saving you money in the long run. It is also important to note that it is very likely you will develop some type of health condition as you age which could make your premium increase or even disqualify you from coverage altogether when you go to renew your term policy.

4. It is easier to qualify

Final expense was created for the older population so it is a little easier to qualify from a health standpoint. For comparison, most term policies are pass/fail. Either you are healthy enough to be approved or you are not. There isn't much wiggle room there. Final expense underwriting comes with a three tier rating system: preferred, standard, and graded.

Clients with a preferred rating will get a lower premium compared to those of the same age that are in worse health. The good news is that you don't have to be in perfect health to get a preferred rating. Clients who receive a standard rating (most people will fall into this range) will pay a slightly higher premium than the preferred clients but not quite as much as graded clients. Finally, graded clients not only pay the most for their policies, but they usually have a 2 or 3 year waiting period before they receive the full benefit of their policy. You can find more information on ratings here! 

The three tier rating system means that many more clients can qualify for coverage. Even those who have suffered from heart attacks, strokes, or cancer can still qualify for final expense coverage (usually without a medical test!).

There are many reasons why you should consider purchasing a final expense policy but there is no "one size fits all" life insurance policy. Every client has slightly different needs. At Blaeos we always encourage those who are shopping for life insurance to seek information and ask questions before making such an important decision.

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