A new year approaching means only one thing: it’s time for health and life agents to shift their focus toward selling final expense. Let us show you how to win in this lucrative market.
People generally think final expense insurance is for “older” (retirement age) individuals and that it usually covers their end-of-life expenses. They also believe it equates to small face values and simpler underwriting. While this may hold true for a significant portion of clients looking for this kind of protection, it’s not the whole story.
What Is Final Expense Insurance?
Final expense insurance, often called “burial insurance,” provides more sales opportunities than many agents realize. What if we told you that you can find carriers offering products that span issue ages from 18 to 90 and provide up to $100K face value of insurance with simplified underwriting or without a medical exam? It’s true. Did you know you can even add riders, such as chronic illness or terminal illness, to final expense plans?
First and foremost, we want to clarify that final expense insurance is a whole life insurance policy. As long as the policyholder pays their premiums, their final expense rates will be level and the policy will remain in force for the life of the insured. In addition, these policies offer cash value that builds over the life of the policy.
Overall, there are three main types of final expense: guaranteed issue, graded or modified, and traditional. Let’s look at each of these categories in more detail to understand who buys final expense insurance and sales opportunities you may not have known existed.
Overall, there are three main types of final expense: guaranteed issue, graded or modified, and traditional.
Guaranteed Issue Final Expense
By and large, applications for guaranteed issue final expense plans are rather straightforward with no health-related questions. Carriers that provide these products will often limit issue ages (50 to 80 years old), offer face values between $5K to $25K, and grade the death benefits by offering return of premium plus an interest rate for around the first two to three years of the policy. Normally, guaranteed issue final expense policies do not come with additional riders. The premiums on these products are usually the highest that you will find. You’re guaranteed coverage — but at the highest rate.
Typically, guaranteed issue final expense plan clients have severe or multiple health issues that would prevent them from securing insurance in a standard or graded format. These health conditions may include (but aren’t limited to) renal disease, HIV/AIDS, organ transplant, active cancer treatments, and illnesses that limit life expectancy. Many times, these prospects have difficulty with performing activities of daily living (ADLs) or are in nursing home care. In addition, clients for this type of plan could have severe legal or criminal histories.
With guaranteed issue final expense plans, you’re guaranteed coverage — but at the highest rate.
As an agent, it’s wise to do your homework when selling final expense plans like these. Not all guaranteed final expense policies are the same. Some carriers will offer better issue ages — as low as 40 years old or as high as age 85. Some will increase their face values to $40K, and others will grant better death benefit conditions by improving the interest rate with the return of premium or lessening the number of years until a full death benefit is available. There are also carriers that will offer built-in riders, such as chronic illness and accidental death riders.
Graded or Modified Final Expense
No two graded or modified final expense plans are the same. Some carriers will offer policies that have issue ages as low as 18 years old and up to 90 years old with face values as high as $50K.
Graded final expense policies usually have a two-year waiting period before the carrier pays the entire death benefit to a beneficiary. Some carriers don’t pay out a full death benefit on the graded policy until the fourth year. If non-accidental death occurs before two years, the policy will only pay a percentage of the death benefit. For example:
- If death happens in year one, only 30 percent of the death benefit might be paid.
- If non-accidental death occurs in year two, 70 percent of the death benefit might be paid.
- Death in year three or later would pay 100 percent of the death benefit.
Modified final expense policies, similar to graded plans, look at health conditions that would place your client in a more restrictive modified plan. These may include alcoholism, angina, stroke, aneurysm, or cancer. With modified policies, benefits usually have a two-year waiting period before the carrier pays the entire death benefit to a beneficiary. If non-accidental death occurs before two years, the policy will only pay a return of premiums plus a percentage of the death benefit. For example:
- If death (non-accidental) happens in year one, the premiums paid will be returned, plus 10 percent of the death benefit might be paid.
- If non-accidental death occurs in year two, the premiums paid will be returned plus 20 percent of the death benefit might be paid.
- Death in year three or later would pay 100 percent of the death benefit.
Generally, you’ll find that clients who qualify for graded or modified final expense plans usually have less than perfect health and have a specific health issue that is chronic in nature and would prevent them from getting a standard or more traditional whole life policy. For instance, they may have chronic obstructive pulmonary disease (COPD), diabetes or have had heart attacks in the past.
Generally, you’ll find that clients who qualify for graded or modified final expense plans have a specific health issue that is chronic in nature and would prevent them from getting a standard or more traditional whole life policy.
Each carrier’s products have “sweet spots” or specific health issues that will get preferential treatment from the carrier. For example, are you aware there are carriers that will issue policies to younger adults in their 20s or 30s that could have chronic conditions like diabetes? Graded or modified policies aren’t only for older clients. You can write more clients into these plans than you might think.
Traditional Final Expense
Normally, traditional final expense plans have the cheapest premiums and the largest availability of additional riders that clients can add to policies. This type of product usually brings the most flexibility in the form of issue age and face value, and in some rare cases, participating dividends. While typical final expense carriers have limits on age, there are carriers that view their traditional whole life products as not only for use as final expense, but insurance policies available for all types of age groups, including juvenile, young adults, and clients looking for protection and investment opportunities. Traditional whole life insurance products can go to $100K in a simplified format and can start at age 0, so these products can be versatile to meet a client’s needs.
Traditional whole life insurance products can go to $100K in a simplified format and can start at age 0, so these products can be versatile to meet a client’s needs.
Unlike guaranteed issue, graded or modified final expense plans, traditional final expense life insurance plans are typically for clients who are in good or excellent health. Remember that since these types of policies are written outside of a true final expense need, an illustration will most likely have to accompany an application.
Note: In a “participating policy” (also known as a “par” policy) the insurance company shares the excess profits (divisible surplus) with the policyholder in the form of annual dividends. Typically, these “refunds” are not taxable because they’re considered an overcharge of premium (or “reduction of basis”).
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With so many options available, it’s important to ensure that you have your clients’ best interests in mind. Ritter Insurance Marketing is a national final expense FMO with a fantastic life insurance department. Ritter offers a diverse lineup of more than 25 final expense carriers with products that have issue ages from 18 to 90 years, face values up to $100K with simplified underwriting, additional riders, and even participating dividends. Plus, expert staff can assist with product recommendations, quotes, illustrations, and pre-case setup to ensure a successful in-force case. Ritter’s Life & Annuity team even created a list of all their final expense carriers’ sweet spots! (Note: You must register with RitterIM.com and log in to view this resource).
Ready to make good on your New Year’s resolution to better yourself? Join Ritter and see the difference