If you watch daytime TV, you’ve likely seen commercials about Final Expense or Burial Insurance. Some companies will disclose more information than others, but like most commercials, the important disclosures are in a block at the bottom of the screen that is typically hard to see and read.
Please don’t misunderstand, for most seniors, final expense or burial insurance is a good thing because it’s the most affordable way to take care of final expenses after you’ve passed away. Doing so in advance shows your love for your loved ones and removes the financial burden that they might have to deal with while they are mourning their loss.
If you or someone you love is struggling with end-of-life planning, talking to a therapist or a personal consultant could be beneficial.
Understanding what You’re Getting (or not getting) with Burial Insurance
The insurance is often referred to as “Guaranteed Acceptance” or “Guaranteed Issue.” There is nothing wrong with these plans. But, they are best used as a last resort for seniors looking to purchase life insurance.
- The Waiting Period – Life insurance policies that are labeled “guaranteed acceptance” or “guaranteed issue” have a waiting period. This is typically two or three years before the company will pay the full death benefit if you die of natural causes. Most companies will instead pay (or refund) all of the premiums paid. This, plus a small additional percentage, like 10 or 15%. So, if you have a policy with a $20,000 death benefit, and then pass away during the waiting period, the funds may not be available. Your beneficiary will get the money you paid in plus the additional percentage they offer. Unfortunately, this will fall well short of paying for your funeral. It’s important to note, however, if you die as the result of an accident, most companies will pay the full death benefit. In those situations, no waiting period applies.
- Your Cost of Insurance – With guaranteed acceptance life insurance, the insurance company does not require a medical exam. Most companies have only few health questions, if any, on their application. Since the company is not taking your health into consideration, it is different. They can charge more for an unknown health risk.
- Lower Face Amounts – When you agree to purchase this type of insurance, most companies will limit your death benefit to about $20,000. The median cost of a traditional funeral is approximately $8,500. And can be much higher.
Level Benefit Final Expense Insurance is the Better Choice
To get better life insurance coverage at a more affordable rate, it makes sense to see if you’ll qualify for traditional Final Expense insurance instead of purchasing “guaranteed acceptance” life insurance from the get-go. Traditional Final Expense insurance is “level benefit” because there is no waiting period. Level Benefit life insurance pays the death benefit for any reason.
With traditional level benefit Final Expense insurance, a medical exam is not required. But, there are substantial health questions on the application. If you are fairly healthy and can answer “no” to many of the health questions, you’ll likely qualify for coverage.
The good news is that not all insurance companies have the same underwriting guidelines. Where one company might decline coverage because of COPD, another company might not take issue with it. This means that to get the best coverage at the most affordable rate, you’ll need to speak with an experienced and reputable independent insurance agent. By doing so, you can shop your insurance needs in one place and find the best solution among many companies.
The Bottom Line for Final Expense Insurance
The purpose of this article is not to denigrate Guaranteed Acceptance final expense insurance. On the contrary, having guaranteed issue life insurance may be your only option. If so, it is certainly better than having no coverage at all.
Kendall Van Blarcom is a senior helping seniors. Contact Van Blarcom Consulting today for help with your personal problems. Or, reach out to provide support for an older adult in your life.