Posts filed under 'final expense life insurance'
There’s probably none of us who haven’t known someone whose family has gone through a terminal illness of a family member. The anticipation of the loss, the battling against the inevitability of the loss, the tremendous expense and strain of the process and ultimately the death take a huge toll on the family. In the very best of situations, it’s a bad deal.
It’s a great thing and a comfort when there is life insurance in place that will help the family deal with the financial part of the loss and get back on their feet. Quite often, especially with an extended terminal illness, medical bills pile up and the only hope is that the life insurance will come through to pay it. Now, with most new policies there is an automatically included rider that offers help when it is first needed, prior to the death.
An accelerated death benefit rider will allow the owner to receive, in most cases, up to half of the death benefit once a person has been diagnosed as terminally ill. Terminally ill is generally defined as a prognosis of less than 12 months to live. Attached is a sample rider from an American General Life term insurance policy.
accelerated-death-benefit-rider
Generally this benefit is used for staying current with medical bills and loss of income if the insured is no longer working, but the nice thing is that the insurance company doesn’t put any restrictions on how it’s used. I see one of the great uses as the ability of a spouse to take time off to stay at home and take care of a dying mate. That may sound a little morbid to some, but for anyone who has helped with hospice for a loved one, I can’t think of a greater gift to a dying spouse.
It might mean the money to move someplace more comfortable. It might mean an outrageous family vacation, a memory that will last forever especially for children, as that last great time they had with their mom or dad.
Bottom line. No matter how the accelerated benefit is used, it is a blessing that is built right into most life insurance policies. If you read through your policy and can’t find where it says the rider is included, you may want to consider applying for a new policy that does include it. The rider doesn’t cost anything so, with prices still declining in many instances, you may be able to add the benefit and lower your cost.
May 29th, 2008
Pre-paid funeral plans. Pre-paid burial plots. Burial Insurance. All are products that are designed to tug at the emotions, tug just hard enough to get you to ignore the realities, ignore the math, and ultimately make a decision that is free from logic.
If memory serves me right, my parents bought pre paid burial plots way back when they were much younger. The idea (the pitch) was probably something about wanting to be buried near loved ones or perhaps being able to ensure being buried next to each other. My dad reads these blogs so I’m sure he’ll correct me if I’m wrong, but the sum of $600 sticks in my head as what they paid. This had to have been 30 or more years ago and they held onto that idea until recently when they decided to be cremated rather than buried.
So, the math to see if the deal was good for them is simple. They gave someone $600 and let’s say they left it with the funeral home for 30 years and let’s be modest and say the funeral home made a 12% return on that money. Am I using too aggressive an interest rate? I’m thinking not because if you know, just based on mortality statistics that you have a long time to use money, high yield mutual funds will provide that kind of return. And, after all, they would need to earn interest to cover the current cost of a plot. So a plot today would go for about $2500 and the money earned by the funeral home would be about $10,200. At the time my parents bought those plots it would have been no hardship for them to have put that money aside. Ultimately they plots were sold and a handsome profit realized by the plotters.
On the other end of the spectrum are burial policies or final expense policies. Globe Life is famous for offering these with no exam and only $1 premium for the first month. The dirty truth is that they are guaranteed issue whole life policies that are exorbitantly priced. In their advertising you will see “rates as low as $3.27 per month”. What they don’t tell you is that is for the youngest age group and that is the per thousand cost, so $10,000 is $32.70 per month and so on.
It is guaranteed issue so if you’re really sick it may be the only deal in town, but if you’re healthy keep in mind that they are offering you the same deal that they’re offering to someone who is really sick. I’m not opposed to permanent life insurance for final expense purposes. If you are reasonably healthy there isn’t any reason that you can’t have substantially more life insurance using a universal life policy with a no lapse guarantee, for less money.
Bottom line. Burial insurance is a rip off as offered by most of the companies selling life insurance under that heading. Again, unless you are too sick to qualify for traditional insurance, burial insurance is a poor choice.
May 29th, 2008
When I sold my first final expense (burial) life insurance policy nearly 30 years ago, it had a face amount or death benefit of $7000. It was certainly, at that time, adequate to properly bury someone and even have a little left over to host a wake.
I still get 10-20 requests every week from people that “don’t want much, just a final expense policy”. When I ask how much they are considering it is always somewhere between $3000 and $10,000. I understand that the reason for asking for a small amount of insurance is always cost. The hope is that the smaller the policy, the smaller the cost. Unfortunately the logic doesn’t hold true.
For a little help with illustrating this I went to Colonial Penn. I believe, after a lot of study, that Colonial Penn is the best company in the business of writing small policies between $5000 and $25,000. This is a truly unbiased opinion. They don’t use agents. Everything is written directly through the company. I can’t sell it and can’t make anything from recommending it. Their products and pricing as so much better than the AARP policies written through New York Life, that AARP should really take a month off and just write letters of apology to all of us members.
OK. Now that I have put AARP in their place again, let’s look at a few examples of what Colonial Penn offers and what the alternatives are. For this example let’s assume a 65 year old man in pretty good health looking for $10,000 in life insurance. A little high blood pressure, a few new knees, but nothing serious. Colonial Penn offers a whole life policy, so we go to their website and get the quotes. All you have to do is type in the state, age and sex and hit submit. These are not guaranteed issue prices, so if our guy is hiding a few health problems they will likely show up on his medical information bureau report which could lead to a decline. But for now let’s assume good health.
Ok, let’s assume a 62 year wife, in comparable health, wants coverage as well. After all, properly burying you and not her is, well, just not proper. Use the same procedure to run quotes for her.
So, for $10,000 of coverage this couple would pay a total of $166 per month. If they wanted $25,000 it would run them $245 per month…..if they stuck with Colonial Penn. If they found an independent agent and asked them to find the best value for them, the results would be substantially different.
First I would have to explain that we are going to ask health questions and they will have an exam, at not cost to them, done in their home at their convenience. I would also have to explain that we don’t offer policies under $25,000, but if price is the issue, there’s good news. To write $25,000 on each of them, approved at preferred rates (not superman rates), their total monthly cost would be $93.39.
Keep in mind that whether through Colonial Penn or Genworth Life and Annuity (the company I quoted), these rates are guaranteed level and payable for life. So, if the reason for only wanting $10,000 is cost, wouldn’t it make more sense for you and your spouse, to have $25,000 in coverage for $70 less per month. More coverage? Less money? There’s no trick to this. Two things drive this out of balance scenario. Colonial Penn offers simplified issue which means no exam. So they are accepting the risk of not having lab results. That coupled with the fact that they are pushing cash value policies where they are simply not needed increases the cost. You’re buying life insurance, right? Take that extra $70 a month and throw it into an annuity if you need the cash, or gift it to your grandchildren if you don’t need it.
Bottom line. What appears to be the easy route, and yes, even appears to be the logical route can lead to higher prices for less insurance. Use your good health to your advantage. Take the physical and get the most bang for your buck. Don’t need that extra $15,000 in life insurance? Leave it to your grandchildren, or your church.
December 29th, 2007
I get calls from children and grandchildren on a fairly frequent basis asking about getting a policy to help with the final expenses of their relative. There seems to be a tendency to start thinking about that when it becomes obvious that mom or dad isn’t going to live a whole lot longer.
Even with new mortality tables showing that people who make it through their 60’s in good health have a better than average chance of making it into their late 80’s, there is a point at which life insurance premiums start dramatically depicting how long mortality tables suggest a person might live.
I believe there is a point, and I counsel people on this subject, where they are better off setting the money aside rather than attempting to purchase life insurance. I recently spoke with the daughter of a woman who wanted to take out a $25,000 policy. At her age and health the premium was going to be $4300 per year. So, in less than six years the death benefit would be paid for. In my mind, it’s time to question if that is a prudent use of the money.
Now, if someone has some inside information that mom or grandma isn’t going to make it very long, let’s say three years, would it be a good buy then? The truth is that if someone is medically not expecting to live more than a few more years, they are generally uninsurable. The other end of the spectrum is what I try to point out and talk about the things not everyone wants to hear.
What happens if mom just keeps on ticking? As a child, how are you going to feel about your decision when your parent is $30,000 into a $25,000 policy? Is it going to be time to cut your losses by dropping the policy? Is mom’s mortality going to become a sore point? And yes, for the greedy child who thought there might be some profit in buying that insurance, is there a time when mom’s longevity stands between you and recouping some of your money?
Bottom line. Life insurance has to make sense. Especially with older people it’s important that everyone be realistic about what final expenses will really cost. Is it better to buy life insurance or just plan on everyone chipping in? You can always get the insurance somewhere, but if you call me, expect to get some reality check questions before we get too far into serious insurance discussions.
December 11th, 2007
Probably the most common scenario I hear is children or grandchildren considering purchasing a life insurance policy on parents or grandparents. Their thought process is, that if the cost isn’t too high, it could be a decent investment. My personal opinion is that purchasing life insurance as an investment, well….it just isn’t right. Life insurance is meant to replace a financial loss, not create wealth where it didn’t previously exist.
Another option that pops up occasionally is an ex-husband or ex-wife wanting to purchase a policy on the ex. Their thought process is to try to make a bad situation better by at least coming away from it financially better off. I suspect there may be some issues with this type of policy from a mortality standpoint.
The problem, quite often, is when these policies are proposed without wanting the insured person to know about it. The problem with that proposal is, if the proposed insured is an adult, they have to be a consenting party to the life insurance contract. For obvious (I hope) reasons, purchasing life insurance on another person without there knowledge is simply illegal.
The one exception to that would be purchasing insurance on a minor, a child. The law does allow the purchase of policies on minors as long is there is financial justification. Final expense policies would meet that threshhold. For anything more than small final expense policies, financial justification, the actual monetary loss incurred upon death, is required. Large policies on minors would take extraordinary justification. Very seldom is there a real, justifiable need.
Bottom line. If the proposed insured is an adult, they have to be a consenting party to a life insurance application. You just can’t buy life insurance on another person without their knowledge, no matter what your justification is.
September 16th, 2007
Term insurance or whole life? Term insurance or universal life? How should you decide just what product best fits your need for protection for your family?
I’ve discussed in numerous posts how to determine the proper term length and the proper use of term insurance. There are plenty of good reasons for permanent insurance. I have beat to death the subject of whole life versus universal life so for the purposes of exploring the uses we will stick today with the generic permanent.
The key element in determining term versus permanent is the length of the need. In the case of permanent insurance, it’s a matter of a need that just doesn’t go away.
That need can take several forms, but let’s start small and work our way through life insurance policies that, by the nature of the need, you simply do not want to outlive. Probably the purest example would be a burial policy, also often called a final expenses policy.
In either of these instances, outliving the policy you’ve been paying for simply doesn’t make sense. It is a permanent need. You need it to be there when you die.
I will use an example from my own portfolio as another need that is clearly permanent. I carry enough term insurance of varying lengths to ensure, at any given point through age 80 or so, there will be enough insurance to take care of my wife’s needs it my absence. I also have a $50,000 permanent policy.
The reason I carry this policy and the reason I believe it should be considered in most situations with husbands and wives, is that I believe it is a smart move to provide your spouse with enough money to bridge the gap between your death and their activation of the plan for the rest of their lives. In my case I believe there will be plenty of assets. What I don’t want my bride to have to do is make any kind of rash decision on how to use them.
Many people carry life insurance policies purely for the purpose of leaving money behind to their adult children. If that is a desire of yours, you should absolutely consider permanent over term. What you don’t want to do is put substantial money into a term life insurance policy for your children, and then outlive the term. At that point you would have to make a choice of dropping the plan, applying for more term insurance at higher prices (with the chance of outliving it again), or converting it to a permanent policy at a higher rate than you would have had to pay 10 or 20 years earlier.
There are plenty more, but the last example I will throw out is that of estate protection. Whether it is federal estate taxes or state death taxes, someone is going to want a bite out of any substantial estates. Carrying life insurance for the purpose of paying these taxes is a prudent move, but definitely a another example of a policy that you simply don’t want to outlive. Anything short of permanent could potentially cost your estate rather than saving it.
Bottom line. Term insurance fits by far the majority of needs, but there are plenty of good, solid reasons for permanent insurance.
September 16th, 2007
It’s time I quit beating around the bush about this subject. I get numerous requests for people who are looking for $20,000 of life insurance or less. Generally I am talking about retired folks who only need final expense or burial insurance. Some times health is an issue. I have tried to find a better product in that size policy, but the truth is that nothing I have found beats Colonial Penn . It is not a company that uses agents. that is to say it is a direct company on line, so I can’t offer their products, but I can recommend them.
From $25,000 on up, which I consider legitmate amounts for final expense policies, there are a number of better options available. A good independent agent can guide you to the best product and the best rate in that area.
Bottom line. Whatever the size of your life insurance need happens to be, you should know where to go for the best possible price.
August 21st, 2007
Every profession has it’s share of dirt balls that will make a buck no matter who it hurts. The truth is that most of the unscrupulous types don’t last in the life insurance business, and leave damaged customers behind trying to make sense of what happened.
A rather fresh example of this is a friend who came to me recently. She and her husband are in their 70’s and both are in pretty poor health. They just got a notice from their life insurance company that their policy had lapsed after 55 years of paying premiums. When they took out a whole life policy 55 years ago, it was for $10,000 of insurance on him and she was a rider on the policy for $7500. This policy, really nothing more than a final expense life insurance policy, at least had a guaranteed level premium and death benefit to age 100.
In 1988 Mr Unscrupulous Agent, representing Great West Life Assurance, called them and said he could increase their coverage, and their payments would be even lower. He got them to use the $5000 cash value from their policy to fund the new policy. The new policy had an $18,000 death benefit for him and $10,000 for her. The agent assured them that the policy would last forever because of the dividends or interest that would be credited to the policy.
Well, Mr Unscrupulous was a nice enough guy, and they believed him, so they bought the new policy. Because of the large cash input up front, the policy held out very well as interest rates dropped and dropped and dropped. This year though, they got a notice saying their $150 a year premium was going to be $425.87. This was more than my friends can afford so they asked me to try to mediate a solution.
Great West Life Assurance, sadly a product of my own home state, Colorado, said that was the way it was. Tough luck for my friends. They went on to say that since the policy was now out of cash, next year’s premium would be about $1800 just to keep up with mortality costs. Mortaility cost increases with age, so it would be higher each successive year.
It is the contention of Great West that my elderly friends should have been able to tell there was a problem based on their annual statements. They should have seen that it was running out of cash. Even though the agent is long since gone, they should have been able to understand the intricacies of a universal life policy and have recognized that there was a problem and they should have known to call the home office before it ever reached this point. It was their own fault, and no, there was really nothing they could do about it. The Colorado Insurance Division is now reviewing the information.
55 years of faithfully paying premiums to a company and the company isn’t willing to clean up the mess that this agent made. If the agent had been client oriented and not commission driven, he could have told them to invest that $5000 and even at a modest return, by next year they would have had almost enough cash to replace what they used to have in insurance. Or better yet, he should have just left them alone. They had life insurance that was guaranteed and he ruined it. Great West allowed him to ruin it.
Because of health reasons, my friends are uninsurable now. They paid for 55 years and now their family will have to take care of final expenses.
Bottom line. Don’t take your own universal life policies for granted and if your parents have life insurance policies, dig them out and review them. Find out what is guaranteed and what isn’t.
July 23rd, 2007
Here’s where you can get a whole helping of my opinion that has grown and matured and reformed and settled since I sold my first whole life life policies in 1978.
Both whole life and universal life are meant to be permanent insurance. They are meant to be there until you die because they are covering a need that never goes away. A very simple example of a need that never goes away is burial insurance. It is almost always a whole life policy and should absolutely be guaranteed to be there when it is needed.
A larger example of the need for permanent insurance is an estate preservation policy, a policy designed to provide the money to pay estate taxes. That need is there until the death of the owner of the estate. In the case of a married couple the ownership passes to the surviving spouse when the first one dies. When the surviving spouse dies, taxes come due. This is generally covered by either a whole life or universal life second to die policy. In the absence of insurance, most of what a couple earned and worked for could go to the government and not their heirs.
Generally speaking I think universal life is the better product. It is more affordable and can be guaranteed to stay in force longer than anyone has ever lived. The thing I really like about it and the reason it is more affordable, is that it can be structured to accomplish it’s mission without massive amounts of cash value buildup.
Life insurance building cash value really catches a lot of attention. The instant image for most people is having your cake and eating it too. With very few exceptions, the cost of building that cash value is much too high. In a later blog I will provide some actual scenarios to back up my opinion.
I beleive everyone should have some amount of permanent insurance. Call it final expense money. Call it burial insurance. I carry $50,000 of permanent insurance so that, when all the term insurance is gone and we are living on our retirement, if I don’t wake up some morning my wife won’t need to borrow money or liquidate assets until she has had time to put together a plan. I call it bridge money. It builds a safe bridge from my passing to her plan.
I will cover this more later, but when you are looking at permanent insurance, always, always make the agent show you the guarantees in the policy. If it isn’t guaranteed past age 100, send the agent back to the drawing board or find another agent. The last thing you want is a permanent policy that wasn’t guaranteed and believe me, there are plenty of them out there. Millions of policies currently in force are not guaranteed to do what the agent said they would. Make them show you the guarantees.
July 18th, 2007
I’ve heard some good ones. “I don’t want to make her rich”. “She only needs enough to get by until she can find another husband”. “What happens if I’m still alive when I reach the end of my term insurance”?
A lot of excuses for not stepping up and buying adequate life insurance. How about we put ourselves in the other shoes? If I was left behind suddenly with a house to pay for and children to raise, how much life insurance would be too much?
Mark Twain once said, “The man who dies without adequate life insurance should have to come back and see the mess he’s left behind.” Let’s value our spouses and children and, as their caretaker, be glad that we can buy adequate life insurance to make sure they are as well, or better off, than we left them.
April 25th, 2007
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