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Evaluating final expense insurance
Final expense insurance, often called burial insurance, was sold door to door as late as the 1960s. Then it became the domain of mid-sized life insurers, funeral home directors and television spokespeople whose message was simple: "You cannot be turned down!"
The cost for burial service has risen from about $700 in 1960 to $8,343 in 2012, says the National Funeral Directors Association. And that doesn't include the plot and headstone.
At the same time, a recent study by the Massachusetts Institute of Technology found that nearly half of all American senior citizens had less than $10,000 in financial assets when they died. And elderly single people were in the worst position financially.
For Americans who don't want to burden heirs with paying for a funeral, burial insurance provides one solution. It also provides convenience because applying for a burial insurance policy does not require a medical exam.
Here are the main things to know about final expense insurance:
- A final expense insurance policy benefit usually ranges from $1,000 to $50,000.
- You cannot be turned down for a final expense policy. Thus, if you have medical conditions that could prevent you from buying an underwritten policy, final expense insurance provides another option.
- These policies have a graded death benefit, meaning your beneficiaries don't get the full payout if you die within the first two years of the policy. Make sure you read the fine print to know what the payout schedule is in years one and two. For example, while each policy is different, a final expense policy from MetLife begins payout after two years. If you die before that, your heirs get the premiums back, plus interest. However, death by accident is covered from Day 1.
- Final expense policies can be either term life or permanent life. If you want to be covered until your death, choose a permanent life version.
Dollar for dollar, burial insurance is more expensive than most other life insurance products because of the lack of medical exam - the life insurer takes on an unknown risk. Rates are based on the average life expectancy of a man or woman, currently pegged at ages 77 and 82 years, respectively.
The life insurance industry's acknowledged heavyweight, MetLife, is using direct marketing to reach a wider customer base for its final expense life insurance. By reaching customers online and through phones and mobile devices, MetLife now is able to offer final expense policies with payouts as low as $2,500 and for $10 a month if you're a 45-year-old woman.
The folks most interested in burial insurance are not only getting older but also poorer. The 2008 recession, which hit everyone hard, was especially unkind to those in their 60s who now have to face living longer with less money.
"Because of the financial crisis, many baby boomers are starting retirement with a higher level of debt," says Lewis Goldman, who handles product development for MetLife's "direct life" business, including final expense insurance.
Burial insurance is one way to ease the burden on heirs. There are other ways to help pay your own way after death.
Survivors can use benefits from a traditional life insurance policy, which would have a larger benefit amount, in a number of ways - to pay for a funeral, fix up a house or other needs. J. Robert Hunter, director of insurance for the Consumer Federation of America, says, "You should buy insurance targeting the overall need of the survivors, not just one thing such as the burial."
Insurance Information Institute spokesperson Loretta Worters says that people should also look into the benefits available from Social Security. Veterans should research death benefits through the Veterans Administration.
Funeral home directors often sell burial insurance or pre-need insurance. A pre-need account ensures that there will be money for a burial. Along with pre-need insurance, customers often choose the details of their funeral at the funeral home, so that family members won't have to. This also ensures that you'll get exactly the funeral you want, and no one will skimp on flowers.
And anyone can open a bank account earmarked to pay for his or her burial.
Advantages of final expense insurance
The biggest advantage of burial insurance is simplicity. You can easily buy it over the phone or online because you're guaranteed to be accepted, and it can't be cancelled as long as premiums are paid.
There's no agent involved and no medical exam, which many people like because it maintains their privacy. Policy amounts are still small enough so that almost anyone can afford payment and at almost any age, from 45 to 85.
It's important to take into account all of your final needs, not just burial.
"Consider final plans and your desired arrangements as well as immediate bills and other long-term costs," says Marvin Feldman, a spokesperson for Life Happens, a non-profit supported by insurance and financial services organizations that educates consumers about life insurance and other products. "Then subtract that amount from the financial resources your family will have at its disposal. Your policy should make up the difference."
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