When most consumers consider final expense insurance, they think about a policy that only pays for a funeral or cremation. It’s certainly easy to have that impression since the television ads that we are bombarded with only talk about someone dying without life insurance. In reality, the ads on TV are generally referring to ” guaranteed issue” life insurance, which is a form of final expense insurance, but it has several caveats that an applicant should know about before they agree to purchase it.
What is Final Expense Insurance?
Final expense insurance is a whole life insurance policy designated to pay for the final expenses (funeral, nursing home, medical expenses) of the policyholder. Also referred to as burial insurance and funeral insurance, traditional final expense insurance has liberal underwriting guidelines and typically does not require a medical exam or blood and urine tests.
Although most final expense insurance policies contain a death benefit from $5,000 to $35,000, the policy has all of the same guarantees that any whole life insurance policy provides.
- Guaranteed to last for the lifetime of the insured as long as the periodic premium is paid.
- The insurance company cannot cancel the policy for any reason other than non-payment.
- Once the policy is issued, the periodic premium cannot be increased by the insurer for any reason such as the insured getting older or becoming terminally ill.
- The policy will build cash value over time that the policyholder can access by taking loans that can be for any reason.
What is Guaranteed Issue Final Expense Insurance?
Guaranteed issue final expense insurance is a whole life insurance policy with no medical underwriting and no health questions on the application. Typically there are only a handful of “knockout” questions that could have your application declined, and almost everyone is accepted.
The difference between guaranteed issue final expense insurance and traditional final expense insurance is the questions on the application ( the guaranteed issue has no health questions), the eligible ages, the available death benefit, when the death benefit goes into effect, and the rates.
Life insurance rates are based on the risk of the applicant. When the insurer agrees to disregard health information of the applicant, the insurer is literally accepting an unknown risk and will increase their rates accordingly. Insurance applicants should only use guaranteed issue life insurance as a policy of last resort. This statement is not intended to imply that this insurance is not credible, it is, but there are caveats that you need to be aware of before you decide to purchase.
- Graded Death Benefit: A guaranteed issue life insurance policy will have a waiting period of two or three years. During that time, if the insured dies as a result of natural causes, the insurance company will typically only return the sum of all premiums paid plus an additional five or ten percent. When the waiting period expires, the insured is covered for the entire death benefit no matter what caused their death. The waiting period does not apply if death is the result of an accident.
- Death Benefit Amount: Although all Final Expense Insurance policies typically cap the death benefit at about $30,000 or $35,000, the guaranteed issue policy will typically assign a lower death benefit depending on the age of the applicant.
- Rates: Since there is no medical underwriting or health questions on the guaranteed issue insurance application, these policies will typically cost considerably more than a traditional final expense insurance policy.
How Do the rates Compare?
As we mentioned previously, guaranteed issue final expense insurance costs more than traditional final expense insurance because the insurer does not take the health of the applicant into consideration. Below we have listed the rates for each type of insurance.
$10,000 Death Benefit for Female Non-Smoker
As you can see from this rate chart, the insurance costs go up because of age for both types of policies and the guaranteed issue policy is considerably more than the traditional policy. Also, life insurance rates are typically lower for women since their average lifespan is longer than a male’s.
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