Financial planning is useful when it reviews the short-term and long-term future. People ordinarily look at the next couple of years but thinking about 10 or even 20 years ahead is sensible. You can gradually improve your financial situation, and you can also anticipate costs that may be years away. As you are looking at possible conditions years from now, you ought to think of expenses that you may incur, even though you are not directly involved. Final expense insurance for your parents is a means of protecting you from a sizable bill.
The Meaning of Final Expense Insurance
Final expense insurance is meant to cover the cost of burial and internment. Why should you be concerned about final expense insurance for your parents? The reason is that it protects the estate, which has named you as a beneficiary.
The cost of burial can be sizable and today the price can be well over $10,000. It includes not only the casket but all the expenses surrounding the final internment of somebody. You’re looking at a variety of fees, such as the burial plot, that must be considered. Ordinarily, the estate is going to handle all those expenses. It means that whatever you inherit is going to be minus of final expense costs. It can delay the distribution of the estate assets because those last rites’ expenses must be paid before you receive anything.
There Can Be Some Hesitancy when Considering Final Expense Insurance for Your Parents
Your mom and dad are no strangers to household finances. They supported you as you were growing up and probably helped pay for your college. Your parents can buy final expense insurance coverage, but do they want to do that?
Final expense insurance means that a person has to face his or her mortality. The insured is not going to enjoy any benefit because the payment usually occurs after this person has died. Your parents may have other things on their mind besides a burial plot and reminding them to buy this type of insurance can be a real waste of time. You might want to take on the assignment. It makes sense because if you are a beneficiary, it is going to help you.
This is the kind of insurance product that many young people have no interest in, but it is not the same as buying a term policy for yourself. Final expense insurance is a niche in the insurance industry that has major insurance companies competing for business. Before you start shopping, we want to explain you a few things you ought to keep in mind.
Rules of the Road when Getting Final Expense insurance for Parents
Final expense insurance is life insurance and the standard rules governing life insurance will apply. These aren’t too rigorous but must be followed.
- Insurable interest. You are buying a policy for your parents, and there must be an insurable interest present. Your insurable interest is the loss you may suffer if your parents should pass away. That happens because their estate must pay the burial costs, and you, as the beneficiary, experience a financial loss. Your credibility is not questioned because you are related to the insured.
- Consent to review medical history. This does not come from you but your parents. The insurance company must be allowed to review their medical history. It doesn’t mean Mom and Dad will have to have a physical exam, but they must answer some questions about their health, and permit the insurance company to review their medical history. You are not able to give that consent on behalf of your parents because of the HIPPA laws. Your parents will have to provide consent.
Types of Final Expense Policies
Final expense insurance policies provide coverage of anywhere from $1,000- $40,000. The amounts might be subject to the laws of the state where the insured resides. There several kinds of final expense insurance.
It is a policy that is in effect for a given period and, ordinarily, the coverage expires when a person reaches a certain age. The age of the insured at the time that person applies will determine the premium rate paid monthly.
Whole Life Insurance
It is more expensive than term insurance, but there is an advantage. The whole life insurance policy does not expire when a person reaches a certain age. It stays in force as long as the insured pays the premium. There is no waiting period, and the policy goes into effect from the first day of premium payment.
This final expense insurance does not require medical review for your parents. However, it comes with a waiting period of up to 24 months (N.B. Any insurance that insists on a more extended waiting period is not worth having). If the insured dies before the waiting period ends, the best you can hope for is to get back all the premium paid plus a little interest.
There is a reason for getting a guaranteed acceptance policy, and it is if your parents refuse to provide medical information. Keep in mind that you will be paying higher premiums due to their reluctance to share data.
The Marketing Pressure
Final expense insurance carriers invest a lot of money in marketing campaigns, often targeted to your own parents. Some use the endorsement of celebrities and others rely on the reputation of their corporate brand. The advertising doesn’t mean the insurance companies are unethical, but we suggest that you don’t get blinded by the glitz. You must concentrate on the quality of the insurance product, and it provides the needed coverage at an affordable price. If all the slick marketing does not deceive you, your eyes are better focused on some of the inherent obstacles to buying a good final expense insurance policy.
“Let the buyer beware” is a good motto for anyone who is looking for an insurance policy. The insurance industry is a vast market with a lot of players in it. There are ethical standards insurance companies adhere to, but those same companies have their underwriting guidelines. These in-house rules can determine if a person qualifies for an insurance policy, what premium is going to be paid every month, and whether an individual is denied one insurance company product but allowed the opportunity to buy another. These are some of the most common challenges an insurance buyer will face.
The Knockout Questions
These are concerned with certain health conditions that the insurance company will not cover. These can include cardiovascular diseases, COPD, AIDS, and Diabetes. If the insured answers in the affirmative to a knockout question, it stops the application process almost immediately. While some companies will permit a person to apply for a different final expense insurance product, many will not go any further.
Elimination is due to the risk the applicant poses to the insurance company. Insurers do not want to pay claims unless they have to do that. Someone who has a knockout condition increases the probability that a death benefit will have to be paid.
The Waiting Period
We talked about this earlier and it bears repeating. Companies will have a waiting period of up to 24 months before the full death benefit is paid. If an individual should die within that waiting period, then the beneficiaries cannot expect to receive the full death benefit. Companies will offer to pay a percentage of the benefit amount, or perhaps offer to give back all the premium paid with a percentage of interest. If your parents are in relatively good health then this might not be a problem at all.
The Premium Rate
It is the amount a person pays each month for the specified coverage. The price charged is determined by the age of the individual at the time the policy goes into effect. People assume that they are locked into that rate at purchase, but don’t bet on that. There are insurance companies that will increase their premium rates every few years.
This refers particularly to term life insurance. Term life insurance is less expensive than the whole life, but the coverage is there for a specified period. If your parents lived beyond the stated termination date, then there is no death benefit because the insurance has expired.
Here is where you need to look carefully at the underwriting guidelines. You might assume that a and age standard of 90 years will be in force, but it doesn’t always happen. Believe it or not, there are some companies where the term expires when the insured becomes 80 years old. When that happens, the ordinary solution is to have the insured by a whole life insurance policy, which does not expire but is more expensive.
Purchase the Final Expense Insurance Policy for Your Parents Now
Those challenges might seem daunting, but they are not impossible. They’re the kind of concerns any sensible shopper ought to think about when looking for insurance. They should not be reasons for ignoring the need for final expense insurance.
We suggest that you investigate buying final expense insurance for your parents as soon as possible. There are two reasons for acting now.
- It gets more expensive the older your parents become. You only must look at the rate schedules to realize that if you delay purchasing a final expense policy for one or two more years, it will result in your paying hundreds of dollars more annually.
- The health of the insured. Your parents may be in excellent health right now, but if there is a change in the near future, it will affect how much it will cost to buy final expense coverage or if your parents will even be allowed to have it.
We recommend that as you begin the shopping, concentrate on the financial stability of the insurance company (An A rating from AM Best is a good indicator). The company should be able to provide as much coverage as soon as possible that you might need. We have one final recommendation for you to think about as you begin your search.
Use an Independent Insurance Agent when Choosing Final Expense Insurance for Your Parents
Your parents sacrificed their time and money so you would get the upbringing and the education you needed to succeed. Buying final expense insurance for your parents is an excellent way of saying, “Thank You.” There are many types of final insurance products and it is easy to get confused. You genuinely do not want to make a mistake and get the wrong policy, which provides the wrong type of coverage at a high premium.
It makes sense to take advantage of an independent insurance agent’s services. This is a professional who deals with insurance companies daily and has an understanding of final expense insurance policies. An independent agent represents several insurance companies and can help you find the right policy for your parents.
We Are an Independent Final Expense Insurance Agency, and we Welcome the Opportunity to Assist You and Your Parents
We will do for you is a fairly standard process. We will inquire of your parents what they are looking for in an insurance product and whether they are willing to provide medical information insurance companies need. We would request medical information but only to help find the right policy. Be assured that any personal information is kept confidential between the them and us.
Our primary objectives are to identify insurance products that fit your needs and are affordable. We will not promote one policy over another, but you and your parents decide which product is best. Once you make that decision, we will do everything possible to make the purchase convenient and timely.
We believe your parents will appreciate what you are doing for them. It takes a lot of pressure off their minds knowing that those final costs are covered. We are here to provide the professional guidance both you and your parents require. Buying a final expense insurance policy is not impossible, but it helps to get some good advice on how to do it. We are here to be of service and assist you in making the best decision for your loved ones.