Some have noted that I’m more than just a little opinionated when organizations and companies try to sell overpriced, under guaranteed term insurance or whole life policies as final expense policies.
First let’s kind of define the final expense need so people will understand the target, or if they even have a target that needs to be aimed at. Having just been through this with my Dad’s passing away 8 months ago I can tell you that final expenses included a funeral, legal fees to close out his trust, fees to change property ownership documents, final medical expenses and hospice care.
Because of planning well and choosing to be cremated versus buried, Dad’s final expenses were under $10,000. If you add a burial and take away the existence of his trust and insurance that covered about half of his hospice stay, the bill would have run closer to $25,000. My professional opinion is that today, in the absence of $25,000 cash set aside for this purpose, a person should have at least a $25,000 permanent life insurance policy in force.
Since I normally beat AARP to death on this subject, for the sake of spreading the beatings out, we’ll actually take a look at Globe Life, a more respectable but still overpriced option. I ran quotes for a 60 year old from their website and was presented with 7 and 15 year term options and whole life as their permanent recommendation. Their whole life product was priced at $119.25 a month and illustrated that the policy would generate $1900, $5200 and $12,000 cash value at 5,10, and 20 years respectively. Concerning that cash value their website states “Builds cash values! Yet another quality benefit is the guaranteed cash values that build up tax-deferred over the life of the policy. Once they start accumulating, the money can be used any way you see fit.”
OK, I want the cash value to be added to the death benefit when I die. That’s the way I see fit. But that’s not happening. If you die 20 years down the road your beneficiary doesn’t get $25,000 plus the $12,000 cash value. They just get the $25,000. And, if you chose to use that cash value in some other way you saw fit, and didn’t pay it back, it will be deducted from the death benefit. What a deal I have for you.
Soooo, I ran rates on what I recommend for a permanent life insurance solution. If you don’t have that money socked away for final expenses I highly recommend a universal life policy with a no lapse guarantee. This product is permanent. You will not outlive it. It has a level premium guaranteed for life. And it doesn’t use cash value as an internal guarantee so the cost is much lower. To be fair, even though most 60 year olds can qualify for better than standard rates, I ran a quote at standard with Genworth Life and Annuity for $25,000 and the monthly cost was $52.52.
The difference between these two policies? You have to take an exam for the lower rate which is at no cost to you. You can have Globe manage $65 extra a month for you or you can do it yourself. With Genworth if you decide to use that $65 “any way you see fit”, it doesn’t have to be paid back to keep your policy intact. If you choose to invest it I think you will see that beating the cash value accumulation in a whole life policy isn’t that tough even if you pay taxes on the interest gain.
Bottom line. Final expense is a valid reason for life insurance if you don’t have it truly covered in some other way. Simplified issue whole life policies such as AARP and Globe Life are, in my professional opinion, a bad idea. Don’t let the lack of exam entice you into paying far too much. The exams and quick and easy and don’t cost you anything…and you get the results whether you ultimately accept the policy or not.
We will be joined shortly for a comment from Hadley who represents Globe Life. He is a fine agent and I have a lot of respect for him. We disagree on this subject, but there are a lot of things we do agree on, so………