Guaranteed Life Insurance

Final Expense Life Insurance

Final expense whole life insurance, often referred to as Guaranteed Whole Life or “GWL” for short, is a policy that is guaranteed to be issued. As long as the insured is within the correct age bracket and other basic criteria the insurance company will provide coverage. There are no health requirements, nor health questions. The insurance company does not ask if you smoke, when the last time you visited your Dr. or any of your medical history.

Understandably, all of this comes at great cost. Contrary to traditional life insurance policies which are priced based on different health ratings and there is a lot of medical and financial underwriting that goes on prior to the policy being issued. Final expense coverage takes none of these factors into the equation.

As such, the premiums for such a policy are considerably higher. On top of that, the policy has some other clauses which are important to be aware of prior to purchasing final expense coverage.

Policy Limitations

Even the best final expense insurance policies have the following fine print that you should take into account prior to purchasing a policy.

Graded Death Benefit

Because final expense policies are guaranteed to be issued, just about anyone can apply for a policy and will be approved. This creates an adverse mortality situation for the life insurance company. Meaning, if anyone can apply, it stands to reason that someone who thinks that they will most likely not live much longer due to a chronic illness, can apply for a policy and obtain coverage.

Being that this is the case, the insurance companies have inserted a clause wherein the full death benefit is not paid out upon the natural death of the insured which occurs within the first couple of years of the policy. The standard amount of time is 2 years but does vary slightly from carrier to carrier.

As logic would dictate, if the insured dies from accidental causes during this graded death benefit period, the full death benefit will be paid out. Similar to a traditional life insurance policy where the full death benefit is payable from day one of the policy. The reasoning would be, that accidental death is not anymore likely for someone suffering from a chronic illness than a completely healthy person.

In a situation where the insured does die during this period, the premium paid to the insurance company will be fully refunded plus a percentage, usually 10%. The 10% additional is for earned premium, so if someone paid the full annual premium, but dies 6 months in, the 10% addition is only applied to half the premium. The remaining half does get refunded, just without the additional percentage.

For example, a client paid an annual premium of $1,000 for a $25,000 Globe Life Final Expense insurance policy and then died 6 months after issuance of the policy from stage 4 breast cancer. The beneficiaries would receive $1,050 as a premium refund plus 10 percent on premium earned.

  • Earned Premium = $500.
  • Unearned Premium = $500.
  • Additional 10 percent on earned premium = $50 (500 x .10).
  • Total refund = $1,050.

Had this death been due to a car crash, for example, the beneficiaries would have received the full $25,000.

Level Death Benefit

Traditional Whole Life Insurance policies usually receive dividends. Those dividends can be used in multiple ways. The most common option is what is called “Paid Up Additions” (PUA). This adds additional benefit onto the base policy so that when it comes time for the death benefit to be paid, the beneficiaries will usually receive significantly more than the initial policy amount.

In this piece, we delve into the inner working of Whole Life policies more in depth.

When it comes to Final Expense policies, there are no dividends, thus the death benefit will never grow to more than the initial death benefit listed in the policy.

This is particularly important in the later years of the policy. Being that the premiums are so high, and the lack of dividends, it is not unlikely that a policy can become uneconomical. Wherein the total amount of premiums would outpace the final death benefit.

As such, these policies are really best suited for people with a chronic health condition that the Dr’s estimate has a timeline of 2-10 years. Because, under 2 here is not much benefit and over 10 it is no longer a sound strategy.

Pricing

As previously touched upon, due to negative mortality, the pricing for these policies needs to be higher than regular policies. Let us compare the difference in premiums.

For this comparison we used the following specifications:

60 year old female (Non Smoker, Standard Health rating – for the traditional WL policy)

Guaranteed Whole Life is from Gerber Life – annual premium of $1,377.75

Traditional Whole Life is from MassMutual – annual premium of $959


As can be seen in this chart, by year 20, the premiums of the Guaranteed Whole Life policy have actually outpaced the death benefit.

Cash Value Growth and Usage

Although Final expense policies do usually include a cash value aspect, the growth rate is extremely slow. So much so that it will most likely never outpace the compounded premiums paid into the policy. The cash value of the policy can be withdrawn or borrowed against similar to a regular Whole Life policy.

Another option besides for surrender for cash value, available in the later years of the policy, is to purchase a “Reduced Paid-Up Policy.” This would use all of the cash value to purchase a completely paid-up policy. The death benefit would be lower than the initial policy death benefit, however, no new premiums would be required.

Here is an example table showing both cash values and the reduced paid-up option of a $25,000 Guaranteed Whole Life policy issued by Gerber Life for a 60-year-old female.

End of Policy YearCumulative PremiumCash ValueReduced Paid Up Insurance
1$1,377.75$0$0
2$2,755.50$381$937
3$4,133.25$905$2,158
4$5,511.00$1,439$3,330
5$6,888.75$1,983$4,454
6$8,266.50$2,537$5,533
7$9,644.25$3,101$6,568
8$11,022.00$3,674$7,560
9$12,399.75$4,255$8,511
10$13,777.50$4,844$9,421
11$15,155.25$5,440$10,292.25
12$16,533$6,040$11,123.25
13$17,911$6,645$11,917.25
14$19,289$7,253$12,674.50
15$20,666$7,864$13,397.50
16$22,044$8,477$14,087.50
17$23,422$9,092$14,746.75
18$24,800$9,708$15,375.75
19$26,177$10,325$15,976.50
20$27,555$10,943$16,550.75

Age Limitations

Final expense policies are available at different ages depending on the issuing insurance company. Most carriers offer coverage between the ages of 50-80, with some expanding to 45, 40 or as young as age 18.

FAQs

Do you ever stop paying for whole life insurance?

With most Whole life insurance policies, yes. With final expense Whole Life, unfortunately, no.

What is the difference between final expense insurance and life insurance?

As explained in this article, the final expense is a guaranteed issue and best for people with a chronic illness expected to live another 2-10 years. Regular life insurance is for healthier people.

Does Final expense insurance make sense?

For people that are expected to live only another 2-10 years, yes. For most others, no.

How do final expense policies work?

They are guaranteed to be issued, have a cash value component and will never expire. For more details please read the article above.

How does final expense life insurance work?

It pays a death benefit to the beneficiaries of the insured. Usually between $1,000 – $25,000 to help cover final expenses such as a funeral etc.

How much is a final expense policy?

The cost varies by age, amount of insurance and company of issuance. Please visit us at Sproutt.com to get a quote or call 888-786-3917.

Is final expense insurance the same as life insurance?

Final expense insurance is a type of life insurance.

Is final expense life insurance worth it?

That depends on when the insured dies. If the insured lives a long life, probably not.

Is it better to have life insurance for a funeral plan?

Final expense life insurance can usually cover your funeral costs.

What are considered final expenses?

Final expenses usually refer to funeral costs and outstanding medical bills. However, they can be used for anything that seems fit and are not specifically earmarked automatically.

What does final expense insurance cost?

The cost varies by age, amount of insurance and company of issuance. Please visit us at Sproutt.com to get a quote or call 888-786-3917.

What is a final expense insurance policy?

A life insurance policy that is most suited for people who will need to cover final expenses in the near future. Please read the article above for more in depth coverage.

What is final expense coverage?

A life insurance policy that is most suited for people who will need to cover final expenses in the near future. Please read the article above for more in depth coverage.

What is final expense life insurance?

A life insurance policy that is most suited for people who will need to cover final expenses in the near future. Please read the article above for more in depth coverage.

What is the final expense whole life insurance?

A life insurance policy that is most suited for people who will need to cover final expenses in the near future. Please read the article above for more in depth coverage.

What is the best final expense insurance?

There aren’t all too many features included in these policies, so at the end of the day it will most often come down to price, which varies by age, gender and state of residence. Please visit us at Sproutt.com or call 888-786-3917 to get a quote.

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