All the Benefits (and Limits) of Final Expense Life Insurance

Discover Final Expense Life Insurance

Guaranteed whole life insurance (GWL), as you may have heard, is really another name for final expense whole life insurance. It’s called that to emphasize that the death benefits it promises are guaranteed to be issued on the active policy. As long as you are within the right age range and meet the conditions that the insurance company sets out for you, your final expense life insurance coverage certifies those payments.

More than that, this kind of final expense life insurance policy won’t make demands for you to disclose or admit health information or add health requirements to coverage. They won’t, for example, ask if you smoke, when you last saw a doctor, or evaluate any of your medical records or histories that many other life insurance policies might require of you.

Of course, there are some drawbacks to taking advantage of policies that promise benefits without evaluating risks within your applicant profile, particularly when related to your health. In truth, they are priced much differently than traditional life insurance because the standard policy can determine a rate according to the health risks you might have.

Underwriters who usually look at tons of medical and financial information before deciding on your rate are working in the dark. And so, even with the best final expense or guaranteed life insurance, the difference in pricing can be stark depending on the amount the policy promises to be issued in the event of your death.

You’ll see, among a few others, that premiums for these policies are somewhat higher than what a traditional applicant can expect. As you review this article, you’ll also learn about a few other clauses that insurers can add to your policy to limit it further. See if you should take on a no-health-questions-asked policy, and get quotes from Sproutt.

Benefits of Final Expense Coverage

When you choose a no-medical-exam policy like final expense life insurance coverage, you can apply quickly, simply, and easily. The process is greatly streamlined without the slow process of getting a special medical appointment and submitting reams of health information. But, there are even more benefits as well:

  • Stop worrying about the stress of insurance applications.
  • Skip the hassles of getting and keeping medical exams.
  • Overcome health obstacles to getting helpful insurance.
  • Get multiple policy options from different insurers.
  • Apply online without the work of traditional policies.

Although, there are still limits to these useful and sometimes necessary policies that should be considered by anyone who wants to apply. Weigh these guaranteed policy benefits alongside the possibility of certain insurer-specific limitations and higher premiums.

Limits on Final Expense Payouts

When we’re talking about insurance, there’s always fine print. You should look closely at the quotes and options you’re offered when shopping, applying, and signing for life insurance—guaranteed or not. Some of these limits and drawbacks may not apply to your particular insurance package or policy, but they are good to know about before you jump in with a fresh insurer and plan.

Graded Death Benefits within Final Expense Policies

You may not realize, but almost anyone can be approved for a guaranteed, final expense life insurance policy. For insurers, this means they need to be careful about calculating when mortalities will happen and how to maintain profits when they do. After all, life insurance companies, like any business, seek to improve their margins year after year. In some cases, they take precautions with graded death benefits.

Because one could, hypothetically, apply for a life insurance policy after they are diagnosed with a terminal illness, some insurers have decided only to pay out on policies that occur after a certain number of years after the policy’s start date for natural deaths. So, if this hypothetical person dies after just one year following the beginning of the life insurance agreement, benefits won’t be paid. The standard time is two years for most insurers, but it varies from provider to provider.

Instead, if the insured dies of natural causes during the graded range, then beneficiaries only receive a fraction of the annual premium. Rather than getting, for example, the full $25,000 of a final expense policy’s death benefits—they would usually be issued a refund of some earned and unearned premiums paid plus an additional percentage:

  • Earned ($500) and Unearned ($500) Premiums Paid: $1,000
  • Additional Percentage (~10% of Earned Premium): $50

By this hypothetical calculation for a person who died after six months with an annual $1,000 premium, these beneficiaries would receive $1,050 if the insured died a natural death before this two-year mark that most insurers use.

Of course, no one can predict the future, and this doesn’t apply to accidental deaths. If circumstances unfold resulting in the insured’s death that no one could have predicted, then the death benefits are still guaranteed regardless of the amount of time since the policy began. This is much like traditional policies where coverage goes into effect exactly on the day that the policy is set to start.

Level Death Benefits in Guaranteed Life Insurance

While most guaranteed and final expense policies won’t earn you dividends, it is often a feature of whole life and traditional insurance. Without these, you won’t receive “paid-up additions” (PUAs) that can help death benefits grow over time and give more to your beneficiaries.

Instead, with final expense life insurance, the amount you choose and that the insurer approves is the amount that your beneficiaries will receive (within the policy’s limits). For some, this means that paying the premium without additions to its ultimate benefit doesn’t attract them as much as more challenging, traditional policies.

That’s why most who choose a guaranteed policy fit people who have health conditions, especially when doctors estimate they have under 10 years of life expectancy. Beyond the two-year term, it can be uneconomical to continue paying for the insurance when you consider graded death benefit clauses.

Premiums for Guaranteed, Final Expense Insurance

Because insurance is a business of statistics, providers know that there is a high rate of mortality and high risk of losing profits. To offset these chances, insurers greatly change the premiums that the insured is responsible for. This is true even when the insured is in a lower risk category such as a female non-smoker.

Some sample premiums you might see from Globe Life final expense insurance and other providers will be in the $1,000 range on an annual basis. Unfortunately, with a $25,000 death benefit, which tends to be the average to expect, you can outpace the usefulness of the policy simply by making the premiums over those 25 years.

Still, one insurer will ask less than another for the same death benefit amount, so it’s important to consider multiple quotes that are as accurate as possible before you start doing the work of applying with your preferred insurance company.

Cash Value and Guaranteed Life Insurance Policies

Very simply, most final expense life insurance doesn’t include a cash value aspect. When they do, the growth rate is slow and is unlikely to exceed the amount paid into the policy through premiums. This protects the insurer, and it means that, in the best-case scenario, the insured should use it to borrow against or withdraw in case of financial need.

Some insurers, however, will offer another option. After many years, you can opt to use the cash value to “pay up” the policy, and you can stop your premiums while keeping the policy active and guaranteed in exchange for a lower death benefit.

Offered Ages for Final Expense Life Insurance

Most guaranteed life policies expect the applicant to be between 50 and 80. Increasingly, however, applicants can be as young as 45 (or even 18) for carriers who are willing to shoulder the risks associated with insuring these younger individuals who are more likely to be motivated by their health to secure a beneficial policy.

Compare Final Expense Life Insurance Quotes with Sproutt

All insurance plans come with benefits and limitations. Guaranteed and final expense policies are no exception. But, now that you know what to expect from these kinds of policies that don’t require health information while still promising high death benefits for your loved ones, you’re ready to make the best choice.

If you’ve decided that guaranteed life insurance is right for your particular situation and circumstances, compare life insurance quotes using Sproutt.