There are probably more ads for final expense insurance (burial insurance) than any other type of insurance advertising (except medicare advantage) on tv or by direct mail through postcards and flyers. Why? Probably because it is a very profitable niche for both the insurance companies and insurance agents. These ads appeal to the “moral nature” of senior adults to not be a burden to their kids or loved ones. Marketing is directed at seniors 50 – 85 years old. The ads often promise insurance without health questions and “guaranteed approval” or you “can’t be turned down for this affordable coverage”. Multiple insurance companies offer final expense insurance and most offer guaranteed issue final expense coverage.
You have probably seen the advertised a rate of $9.95 per month, at any age or health condition, and with premiums that are guaranteed never to increase or coverage to decrease for life. What it doesn’t clarify is just how much insurance you can buy for $9.95 per month. Insurance premiums are based on age, health, sex, smoker status and personal and family medical history. Obviously, the older you are the less insurance you can buy for $9.95 per month.
I checked with the insurance company sales line and requested a quote for an 80 year old man, non-smoker, in good health, with no family history of early death. After being switched between multiple marketers who tried to avoid answering my question, I finally got the answer. $9.95/month could buy our prospect $462 of final expense life insurance. Then the fine print: If death occurred during the first 2 years, they would refund the premiums paid, with interest, but not pay the death benefit. If death occurred after 2 years of premium payments, then the $462 death benefit would be paid. To maintain coverage, premiums would continue until the death of the insured.
Let’s look at the math.
$9.95 per month x 24 months = $238.80 in premium payments for $462 in total coverage, payable beginning in the 25th month. In addition to the premium, there are also annual policy fees, (typically $20 – $30/yr)
$9.95 x 24 months (1—24) = $238.80 (no coverage)
$9.95 x 12 months (25—36) = $119.40
$9.95 x 12 months (37—48) = $119.40
Total paid in premiums $477.60 (first 48 months)
The bottom line:
The only way you come out ahead is to die, between months 25 and 47. If you live beyond month 48 you are still paying your monthly premium but receive no additional benefit. If you lived for 10 years, you would have paid $1194 in premiums and would have $462 In coverage to be paid to your beneficiary. If you cancel the insurance then all premiums which had been paid would be gone and you would have no coverage.
In this scenario, you would probably be better off saving the premiums in an interest bearing account and leave that account to your beneficiaries, or if you don’t like them anymore, splurge on yourself. If you saved $9.95/monthly starting at age 30, earning 3% interest, by age 60 you would have approximately $6000 in cash in your account. By age 70 that amount would be approximately $9500. and by age 80 approximately $14,000.
Obviously, you can buy increased coverage for increased premiums, but the math works the same. The younger you are, the healthier you are, the lower the premiums. Do the math calculations for yourself. Whatever quote you receive, multiply it out and see how much real benefit protection you receive for the dollars invested in premiums.
None of us knows when we are going to die, and most don’t like to think about it or plan for it. But it will happen sometime. If you start planning early, then term insurance is much more affordable and provides substantially more coverage for the same or lower premium dollars. Don’t wait until the only option is guaranteed issue insurance.
Contact us for a review of your financial situation and let us help you prepare for whatever contingencies may be in your future. Death is not the only obstacle to plan for. Accident, illness, incapacity, long term care, diminished functionality are all risks of living and aging. Proper planning can relieve future stress and hardship.