FINAL EXPENSE LIFE INSURANCE

Also known as Simplified Issue / Guaranteed Issue - Graded Benefits

No one likes to think about the end of life, but planning to cover final expenses is no different than planning for other life phases. Having final expense insurance is one way to take care of final expenses, and helps ease the financial burden placed on a family when a loved one dies. Final expense insurance is a type of life insurance policy that covers the final costs of the person who is insured. This coverage is typically available to individuals who are age 50 to 85. Planning ahead will provide peace of mind so individuals can focus on life and living, not how their last expenses will be paid.

You would consider applying for this type of insurance when health issues or age make getting traditional term or permanent life insurance challenging.

A final expense insurance policy is typically not as difficult to purchase as standard permanent whole life or term life insurance. Generally you do not have to take a medical exam to purchase this type of insurance. You can select an amount as small as $2500 up to as much as $100,000 depending on the type of coverage, to cover your final costs. While life insurance policies in this category are called final expense or burial insurance, they are issued as traditional life insurance policies where the named beneficiary could use the proceeds for any purpose.

You can apply for a  simplified issue plan, which requires that you complete a basic medical questionnaire and meet specific qualifications, or for a guaranteed issue plan, which requires no questionnaire or medical exam and guarantees acceptance of your application. If you have a serious health condition, you would probably have to purchase the guaranteed variety and may be required to purchase a policy with a graded death benefit, which provides coverage after the first 1 to 3 years of your participation. You cannot be turned down for the guaranteed issue policy, but can be denied coverage for the simplified version. 

Simplified Issue:

With a Simplified Issue Life Insurance Policy, a few questions are required to be answered, dependent on those responses, you will be offered coverage if they meet the underwriting guidelines of the insurance company to which you are applying for coverage. This will determine approval and cost of your premiums.

Typical Questions Asked When Applying for Simplified Issue Life Insurance:
Do you smoke?
Do you currently reside in a hospital or long-term-care institution?
Have you been declared terminally ill?
Do you have AIDS or HIV?
Have you been disabled or receiving disability benefits for more than 30 days in the last 12 months?
Have you in the past 24 months used narcotics, amphetamines or any controlled substance?
Have you received chemo or radiation therapy for cancer in the past 12 months?

Depending on the carrier, there can be a few additional questions.

By answering “Yes” to smoking, you may still be able to get a Simplified Issue Life Insurance Policy but it will be more expensive.
If you answered “Yes” to any one of the other questions you will most likely be declined coverage.

Pro’s/Con’s

No medical exam required

Full face value or “death benefit” is available immediately upon policy issuance

It will be more expensive than traditional fully underwritten life coverage but less expensive than guaranteed issue life insurance (see below)

Guaranteed Issue / Graded Benefits

With Guaranteed Issue, there are no medical questions to answer, if you pay the premium the company is “guaranteed” to issue you a policy. The major drawback is that usually the full death benefit is not available until after the policy has been in force for a certain period of time, usually one to three years. This is called a graded benefit. In some cases, if the insured person dies within 2-3 years of purchasing the policy, then the beneficiaries only get refunded the premiums paid up to that point. Some companies give a percentage of the death benefit, but the beneficiaries won’t get the full amount.

Pros/Con’s

Requires no medical exam or medical questions.

You are guaranteed to be covered by a life insurance policy 

Graded benefits – if the insured person dies within a specified amount of time, they will only get a portion of the death benefit or a portion of their premiums paid will be returned. 

A minimal amount of coverage is available (2,000-30,000)
The most expensive life insurance.

If You're interested in higher amounts of coverage, you would have to purchase several different guaranteed issue policies and stack them until you reach your desired coverage amount.

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