Would you Sell That to your Mother?

The case against final expense life insurance

Final expense life insurance has gotten a lot of press in recent years, and it’s easy to see why. It sounds accessible and quick to obtain, a true product for the people. And yet, the reality is that it often brings with it even greater underwriting challenges than you would encounter with a more traditional policy.

Part of the allure of final expense coverage is that, once we reach age 50, life insurance advertising takes on a whole new twist, designed to make us believe that we can’t possibly qualify for insurance that requires an exam. This is simply not true. As agents, we must take a close look at what’s being offered, advertised and pushed as final expense life insurance — and then compare these products with traditional life insurance products.

A final expense analysis

Let’s dig to the bottom of this because if you’re an agent that cares, an agent who tries hard to always make sure your clients get the best possible deal, you need to be well-versed in the ways the elderly are being abused by shoddy advertising and terrible products. Here are five things to consider when looking at final expense life insurance or senior life insurance. 

1. No exam doesn’t mean you are guaranteed approval for coverage.

With no exam life insurance, you still answer medical questions. Generally speaking, a “yes” answer to any one of these questions leads to a decline. In contrast, traditional life insurance orders medical records as part of its underwriting process. In the context of a full medical background, one negative health event is less likely to lead to an automatic decline.

2. Coverage from burial insurance companies is not the deal it seems to be.

Most final expense or burial insurance companies will offer a guaranteed issue life insurance and they will give you the coverage, no questions asked. These companies offer very modest amounts at very high prices, and there is no death benefit in the first two or three years. They will tout the whole life cash value aspect. It is not a plus at our age.  No magic here. The cash value comes out of your pocket.

3. Traditional applications often lead to better rates.

Far more people than you would think will qualify for a standard or better rate with a traditional exam and application. Here’s one example: If you are 70 and want $50,000 of life insurance, a final expense policy may cost $183.99 a month. Every five years, or so, the price will increase, so at age 75, you’ll pay $259.49 a month. In contrast, a standard rate (the fourth best rate class) with a traditional exam and application allows you to lock in a guaranteed level rate for life of $167.32.

4. Final expense rates will increase every term.

Most of the big final expense companies offer 5- or 7-year term insurance. The price increases at the end of each term and is usually not guaranteed. Many of these companies also end their term product at age 80, about the time most folks want to feel comfortable with their level of coverage.

5. The “no waiting period” bonus is a myth.

Along with no exam coverage, these companies like to sell “no waiting period” insurance. The truth, however, is that there is no waiting period with any type of insurance, except for guaranteed issue life insurance. These insurers are in fact alluding, not to a waiting period, but to the fact that traditional life insurance has a two year contestability period. This period doesn’t mean the insurer won’t pay. As long as your client tells the truth on their application, you can forget about those two years. Traditional life insurance companies go the extra mile to pay every valid claim, simply because it’s bad business to be known as a company that doesn’t pay.

The bottom line is this: The big boys in the senior life insurance market are — and I don’t say this lightly — guilty of elder abuse. They want to scare us all into believing that final expense life insurance needs to be done without an exam. Personally, I think it ought to be against the law to subtly mislead us old folks or our clients. We’re better than that as an industry. 

Ed Hinerman is the owner of the Hinerman Group, a Salida, Colo. insurance agency. Visit his blog, Ed Hinerman on Life Insurance, at hinermangroup.com/blog.

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