Hi, I’m Leonard Johnson, founder and CEO of the Leonard Johnson Agency, LLC. Since 1990, I have helped thousands of people save a fortune on their life insurance. This short video will help you sort out what you need to know about final expense life insurance. There are lots of questions and misperceptions about this type of insurance, so we’re going to address them one by one. By the end, whether or not you choose to trust the Leonard Johnson Agency, LLC to handle your final expense insurance, at least you’ll have the information you need to make an intelligent, informed decision.
First of all, you might be asking yourself, do I even need final expense insurance? Well, we all know that life can be expensive. What you may not know is that death can be expensive too. I lost both of my parents just a few years ago. Each of their funerals, and believe me, they were nothing fancy, cost us about $15,000. And they already owned their burial plots. The national average, I’m told, is closer to 8 to 10 thousand dollars, but even that is a lot of money for most people. If you have a bunch of money saved up and you aren’t concerned about the costs associated with paying for your final expenses, then perhaps you don’t need final expense insurance. But if not, you have to ask yourself, if I don’t take care of this, who’s going to get stuck with the bill?
In addition to funeral costs, there are also other final expenses, such as outstanding debts and medical expenses, that often wind up being the responsibility of people you care about. So, does it make sense to consider a final expense policy? That’s up to you. The way I see it, information is good. It’s certainly worth learning more about, so that’s what we’re going to do now.
We’ve all heard the final expense commercials on TV and probably received dozens of postcards each year promising that you can’t be turned down and that there are no medical questions and no exam to qualify. So, are these claims legitimate? Actually, the claims are legitimate. There are basically two categories of final expense coverage: guaranteed issue and simplified issue.
Guaranteed issue is truly just that – you can’t be turned down for any reason. There’s no medical questions and no exam. It’s truly guaranteed acceptance, pure and simple. So, if you’re really sick, how can the insurance companies afford to do that? After all, we know that life insurance companies are not in business to simply give away free money. Here’s how they do it: the policies that are true guaranteed-issue all come with a catch. Most of them work something like this: if you died during the first two years of the policy, you don’t receive the full death benefit. What you do receive, however, is your money back plus ten percent of the money you paid in, or some similar variation of that. So, let’s say your situation is such that you expect to die in the next two years. Would buying one of these guaranteed-issue policies turn out to be a bad deal? I don’t think so. Where else can you put your money and get it back, plus a guaranteed 10% in such a short time? More importantly, after you make it through that two-year period, the coverage is real. If you bought, say, a $12,000 policy and you died two years and one day after the start of the policy, the insurance company will pay the full $12,000.
The second type of final expense coverage commonly available is called simplified issue. This type of coverage costs less than the guaranteed-issue policies and doesn’t have those same waiting periods before the full coverage is available. That means, even if you die just one day after coverage starts, your beneficiaries receive the full death benefit of the policy. In every way, simplified issue policies are better than guaranteed-issue policies if you can get one. But simplified issue policies do require you to be in halfway decent health to qualify. Nothing crazy, you certainly don’t have to be perfect. In fact, you can often qualify for this kind of coverage even though you may have one or more medical conditions. And again, if you can qualify for a simplified issue policy, it would be utterly ridiculous to buy a guaranteed issue policy. You might even be surprised to learn that a very high percentage of folks can qualify for a simplified issue policy. With simplified issue, there’s still no exam, but you will have to answer a few medical questions to see if you qualify. Of course, even if you don’t qualify, you can always qualify for and buy a guaranteed-issue policy.
One more category of policy, kind of right in the middle of the two we just described, is commonly called modified or graded death benefit life insurance. This type of policy may have a schedule of percentages of death benefit that grade over time. For example, one might provide that during the first year, if you die, you’d get 30% of the death benefit, year two 70%, and year three 100% of the death benefit. Because this is a compromise between the two other types of plans, these types of policies typically cost more than simplified issue or level plans. Since they provide varying levels of coverage right out of the gate, their pricing can vary, sometimes more, sometimes less than guaranteed-issue plans.
Most final expense life insurance companies are prepared to approve and issue policies so that you could sometimes be covered within just a few minutes, either in person or right over the phone. Depending on the type of policy, it can take a few days for your payment to clear, but once it does, you’re covered, and your policy is generally sent out to you just a few days after your payment goes through. Other than in rare circumstances, none of which are likely on a final expense policy, the death benefit proceeds of life insurance policies are received by your beneficiaries 100 percent income tax-free. One might say it’s Congress’s gift to you and, in essence, their way of encouraging folks to own life insurance.
As you can probably guess, the more coverage you want, the more it costs. A $10,000 policy would obviously cost about twice as much as a $5,000 policy would. We’ve already learned that simplified issue plans cost less than guaranteed issue plans for the same coverage amounts, and their full death benefits are available right away with no waiting periods. For more specifics, here’s a typical example of pricing for a 65-year-old woman: a $10,000 policy could cost as little as $42 a month for a simplified issue level death benefit or as much as $60 a month or more for a guaranteed issue plan. If you’re younger, it would cost a bit less, and older, obviously more.
On both types of plans, rates are guaranteed never to go up once they’re issued. Rates and availability can also vary by state, but these numbers represent a pretty realistic range to give you some idea of what to expect. Final expense policies, both simplified issue and guaranteed-issue, are almost always issued as whole life. Whole life is the type of product that has a premium that remains level for life and has coverage that does not expire like term insurance can. If you own a whole life final expense policy, your coverage amount or death benefit will never be reduced or canceled, other than if you don’t pay your premiums each month.
And like I said, if you have the guaranteed-issue type, then you’ll typically have a limited death benefit in the first couple of years, still getting all your money back plus 10%. But after that, it becomes just like any other whole life plan: full death benefits that remain level and cannot be canceled other than for non-payment of premiums, and premiums that remain the same and never go up for the rest of your life. Another feature of whole life is that whole life policies, by law, have reserves that create cash surrender value. Since final expense policies are generally small in face amount, the cash values don’t typically amount to all that much, but they are real and available for you to access via policy loans should you ever want to.
Are there differences between insurance companies and agents in the final expense arena, in terms of what they offer and what it costs? Absolutely. Some companies only offer guaranteed issue plans. Why they do this, I couldn’t say. As we mentioned earlier, even if your health is below average, you can often still do better with simplified issue policies. We believe that as your advocate, you deserve to know if there’s something better that you can qualify for, giving you more death benefit, no waiting period, and lower premiums. So the answer is no, they’re definitely not all the same.
Most final expense policies are available as long as you’re age 90 or younger. Some companies offer policies all the way up to age 90. If you’re over 90, it’ll depend on the company, what state you live in, and what the company’s rules are. And remember, once you buy a policy, as long as you pay your premiums, they can’t take it away from you. These policies last until you die, no matter.
How long that takes. These policies are issued by some of the oldest, largest, and strongest financial institutions in the world – life insurance companies. Companies like Security National Life, Transamerica, CICA, and many others. These companies manage billions of dollars of assets, are highly rated by A.M. Best, and promptly pay claims every day. Some of them have been doing it for well over a hundred years.
The insurance companies decide which methods of payment they’ll accept, and that does vary from company to company. All of them will take a standard ACH form, which allows them to debit your bank account for the premiums each month. Some of them will also take credit cards, at least for your first premium, while others will not. Lastly, some will even allow you to pay using a debit card or Social Security debit card like Direct Express, while others will not. We know the rules at each company and can help guide you.
The proceeds of a final expense policy can be used for anything at all, unlike prepaid funeral insurance, where the funeral home is your beneficiary. With the final expense policy, how the proceeds are used is totally up to your beneficiaries. Obviously, most people use the proceeds to help with final expenses like the cost of a funeral and any other outstanding debts or bills. But they can also be used to augment your legacy for your loved ones, leaving behind a little extra cash for any purpose you like.
When someone dies, the Social Security lump sum death benefit from the government is only $255. That’s hardly enough to pay for a funeral. In fact, one could argue it’s not even enough to pay for the flowers. Anyone who believes that they can rely on Social Security to cover their final expenses is kidding themselves.
Some of our clients ask us whether the ownership of a whole life final expense policy will make it harder for them to qualify for Medicaid. Here’s the answer: while whole life policy cash values are counted in the Medicaid eligibility calculations, the cash values in these policies are relatively small and unlikely to cause any disqualification for Medicaid. If they did, you could easily borrow the funds out of the policy and spend them down in order to qualify. As a practical matter, we don’t see this happen very often at all. But if you’re still concerned, one simple workaround is to have one or more of your children own the policy right from the beginning. You can still pay for it, and as long as you don’t own it, the cash values won’t be included in the Medicaid eligibility calculations.
So, who should you trust? In my opinion, you should trust and buy your life insurance from whoever gives you the best advice. If that’s us, we hope you’ll trust us to handle your application. It’s how we make our living, and we’ve been doing this for over 34 years. If you get better advice from another agent, then you should buy from them.
Final expense life insurance is a very real and legitimate way for people to create funds to offset the inevitable expenses associated with dying so that the burden of those expenses is not left for others to deal with. Policies are available up to age 80, even age 85 at some companies, regardless of your health, and can be tailored to meet your budget. I hope this was helpful. If you have any questions about final expense life insurance, feel free to call us at the number on your screen, and we’ll be happy to help you, even if you don’t buy your policy from us. Thanks for listening.
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