By Jeff R. Wilhelm, JD
You can tell the difference between a professional insurance advisor and a salesman by the way they deal with the emotional issue of how to protect a client's family and loved ones from the cost of final expenses such as funeral home costs and burial or cremation expenses. An insurance salesman will be quick to sell you an insurance policy called a final expense insurance plan that is supposedly designed specially for the purpose of paying for final expenses. In reality, a final expense plan is nothing more than a small whole life insurance plan with limited medical underwriting. Because of the nature of the limited underwriting, it is easier to get in place if you have health issues but it is way overpriced for what you get. A professional insurance advisor on the other hand will slow the process down and evaluate whether you even have an insurance need in the first place when it comes to covering final expenses. If you do, he or she will then consider for you a plan or strategy that is the most cost effective and that will ensure that your family and loved ones will have the funds to pay your final expenses when the time comes.
Having a plan (not necessarily insurance) in place to cover your final expenses upon death is very wise. No one wants to burden their family with costs in the neighborhood of $15,000 to $20,000 today or $25,000 to $30,000 ten years from now taking into account inflation. The issue is what is the best way to ensure that the money is there when your family or loved ones need it? A final expense insurance plan is rarely the best solution.
The first question that you need to ask is whether you even have a need. If you are debt free and have $20,000 to $30,000 today in liquid assets that you do not need or plan to spend, you do not need to devise a savings plan or buy insurance at all. Instead, you simply need to make sure that the cash remains available and is not needed for other things. If you do not currently have the money saved up already but live well within your means, you should begin saving and setting aside the money that would be necessary for your final expenses. Over the course of 20 years, you would only need to save or set aside $100.00 per month to cover your final expenses. If possible for you, it would be most cost effective to save the money than it would be to spend the $100.00 per month on insurance.
But let's say you do not have the money saved already and you are not very good at saving money. The next best plan then would be to buy, not an over-priced final expense insurance plan, but rather a competitively priced universal life insurance plan. For about $75.00 per month, you can buy a universal life plan that provides $25,000 in coverage should you die before the age of 100. A final expense plan for the same amount of coverage would cost closer to $175.00 per month. It is true that the final expense plan is a whole life policy and that it stays in place for as long as you live, including if you live beyond age 100, but the much less expensive universal life plan to age 100 should do the trick for most people. However, if you are concerned about outliving age 100, you can do a fully underwritten $25,000 whole life insurance policy instead which would cost about $115.00 per month as opposed to the final expense plan at $175.00.
The only reason why salesmen peddle final expense insurance plans is because they are easy to get in place based on limited medical underwriting and because they pay high commissions to the salesman. A salesman has no incentive to ever tell you to save the money instead because they do not get paid if you take that approach. They also have to work harder and they get paid lower commissions if you want a fully underwritten universal life insurance plan or a fully underwritten whole life insurance plan. The bottom line is that if someone tries to sell you a final expense plan as your first option, consider finding a professional insurance advisor like Prescott Health and Life instead. We will do what it takes to do what is best for you.
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