When I go through my daily Google Alerts to keep current with life insurance related matters, one of the topics I follow is “Final Expense Life Insurance”. More than any other topic I follow this is absolutely riddled with a combination of bad advice and invitations to sell final expense life insurance. This is where the bottom dwellers of senior life insurance swim.
Any time there is this much attention to recruiting agents, it’s a sure sign that there is money to be made and companies are trying to throw as many agents at it as they can to ride the wave. I can tell you after years of study of final expense products that they are typically a terrible value wrapped in a syrupy “we understand the needs at your age” kind of sales pitch. If they really understood your needs wouldn’t more insurance, lower cost and great guarantees be their mantra?
So, let’s get real about a couple of things. Almost all “final expense”, are either a simplified issue (ask a few questions, no exam) or a guaranteed issue (no questions, no exam) whole life policy. They always want to make sure they you understand that it is a whole life policy that can accrue cash value that could be borrowed back at some point. Their target market is 60-80 year olds. If they can afford the premium on the whole life insurance the chances are about zero that they would borrow money from the policy.
The companies throw out cash value as a giant plus, but never do address the downsides to cash value. The big number one that people just don’t get is that the cash value comes from you. It isn’t magic cash value that happens to be in their policies. You pay extra to put it there. The other thing they don’t talk about is the fact that if you do happen to borrow from the cash value (which doesn’t accumulate very quickly), you either have to pay it back or the loan plus interest will be deducted from your death benefit if you keep the policy until then.
So, what’s my point? What happens if you are healthy and don’t mind answering health questions and don’t mind taking a free exam done right at your home and don’t really want a cash value policy, but do want it guaranteed for life? What if you already have life insurance in force?
First, there is a life insurance product available in amounts of $25,000 or more called a universal life with a no lapse guarantee. Not picking on any one final expense company, in general this no lapse product will be 1/3 to 1/5 of the cost per thousand of a final expense or burial policy if you qualify for standard rates, which most of us do. So for the convenience of not answering several health questions and not taking an exam you are going to pay 3 to 5 times more than you need to or you will get comparably less insurance for the same money.
If you have term insurance in force, find out what it would cost to convert the minimum amount to a permanent policy. This is done as a feature of your term policy without an exam and without regard to any health changes that may have occurred since you first took the policy out. Since your term policy may have been approved at a younger age at preferred or preferred plus rates, that is the rate class that will determine what you pay when you convert. Since there are no final expense policies underwritten for those rate classes, you could be the only one on your block to have one through conversion.
Bottom line. Final Expense life insurance companies make a killing off of their policies at your expense. They try to wrap you up with the convenience of it all, making you believe that it’s terribly inconvenient to apply for traditional life insurance. They will even try to make you believe that they will pay within a day of the death where traditional companies will take months. They know you can do better, but they do everything they can to make you believe you shouldn’t waste your time. My advice. Apply for traditional life insurance first and if you don’t like the outcome, you can always go back. They still want your money.