6 Differences Between Final Expense Life Insurance And Traditional Life Insurance – Podcast Episode 34


In this podcast, I’m going to be discussing six differences between final expense life insurance and traditional life insurance. Now the first difference between final expense life insurance and traditional life insurance is the coverage amount. Now with final expense life insurance, we’re looking at just getting enough coverage to take care of final expense needs. So it’s not like we need hundreds of $1,000 or millions of dollars to offer enough protection to protect your family from those final expenses. In most cases, depending whether you’re going to be buried or cremated, you might only need anywhere between 5000 to $15,000.

So some of our younger clients for final expense insurance. And when I say younger, that might be even in the 60s in the 70s. You know, they’re just planning on living another 20 plus years. And you might want to get a little bit more coverage if that’s the case, because we know there’s something out there called inflation. And inflation causes things to increase in price over time. And funerals and cremations are not immune to price increases due to inflation, because they fall under all goods and services and all goods and services are impacted by inflation. So yeah, in most cases, it’s going to be the coverage amount is going to be the big steal.


Now, traditional life insurance, you might be doing any number of different things with it, you might want to have 250,000, or 500,000, or a million dollars worth of insurance just as income replacement. Because let’s think about it, if you make $100,000 a year, and you pass away a million dollars worth of coverage is only going to replace 10 years worth of income. But say you’ve got children that are three to five or five or six, I mean, you know, they’re not even going to be out of high school yet. So that money is just going to continually get depleted every single year.

And then your your spouse or partner or significant other, they’re just not going to have any money at that point and the you know, what’s the policy ends. The other way to look at that, too, is if you had a million dollar policy, and you wanted that just to provide income for your spouse, partner or loved one, you know, you could give that a million dollars. And when you pass away, they could invest that money and live off the interest. But we know interest rates have been fairly low.

So let’s say your return on investment was only 5000 or 5%. So you got a million dollar policy, your your significant other, when you pass away is just going to invest that they’re going to get 5% return, which means $50,000 a year. So you were making $100,000 and contributing to the family at $100,000. Year, basically, income gets cut in half. Now there’s taxes and some other stuff that goes on in there. But yeah, you just you so you’re not tactically, a lot of people think if I get a million dollars worth of insurance, I’m a millionaire. No, if you’re gonna invest it, you’re only a $50,000 in there. That’s not a word. But yeah, if it’s if it’s 4% return on your on interest return, it’s only going to be $40,000.


So just understand that in most cases, if you’re looking at income replacement for traditional life insurance, you’re probably going to need more than you actually have. Now, the word that would differ as if you were looking at term life insurance or something like that, to protect mortgage, you know, mortgage protection insurance. See you’ve got a $250,000 mortgage, and you want to make sure that when you pass away, it’s paid off, you could get a $250,000 policy, and then that way your spouse partner or loved one would have a home that’s paid off free and clear. None other differences.

Maybe, maybe you’ve got a business and you know, you’ve got key person insurance or you’ve got the owner of the company, you’ve got some business continuation insurance that if you know they pass away unexpectedly, the business doesn’t fold. You know, or if you’ve got somebody that’s really key to the business, get insurance to them on them. And then that way, you know, if and when they pass away, it’s not going to have this huge financial impact. On the business, I mean, it will be you’ve got insurance to kind of back that up and cover the revenue loss until you can get things figured out. So there’s a lot of different complexities that go on in there. And certainly at funeral funds of America, we can help you out and help you understand all your options.


The second difference is premiums. So final expense, life insurance typically has massively lower premiums. And the reason is, is we’re we’re using lower coverage amounts. And we’re also using whole life insurance. Now, traditionally, whole life insurance is going to be more expensive than term life, but not when we get into the smaller face amounts or coverage amounts. And the reason we do that is, again, we’re just taking care of final expenses, we don’t have a whole lot of other expenses that would need to be paid off, you know, homes are typically or anything like that.

So it’s very affordable. Now, as far as term insurance, the you know, the rates are all over the place. And that has to do with number one, your age certainly has to do with your health, and past health history and stuff like that. So if you’re in really great health, you can qualify for Super Preferred rates. If you’re not in great health, you’re going to get what’s called rated numbers, right.

So, you know, you may be table rated at a higher risk factor. And that way, the premium is going to be more expensive, but there’s really, there’s, there’s some people that are not insurable. But most people don’t fall into that category. As long as just don’t wait too long. I mean, whatever you do, don’t, don’t wait until you’ve had the heart attack to call your insurance agent. You want to get this stuff done beforehand. That leads into our third topic, our third difference, which is underwriting.


So final expense, life insurance, burial insurance, cremation insurance has simplified underwriting, which means what they will do, what the insurance company will do is they will just basically look at your prescription record history. And they know that if you’re on a blood thinner, that you’ve got some circulation issues, they’ll know if you’re on Metformin that you’ve got diabetes. So know if you’re on Losartan, that you’ve got high blood pressure.

With with final expense life insurance, the underwriting is called simplified underwriting. And it’s very flexible. And it works great for people that have health issues. Because think about it. final expense life insurance intended is intended for people aged 50 to 85, who’s got more problems than anybody else in the world, right? It’s gonna be gonna be people ages 50 to 85. So it’s really flexible, it’s designed to be easy to qualify for, we work with enough different insurance companies that we typically don’t have any issue at all, getting people approved for first day coverage or benefits. And that is really important, you always want to get first day coverage.


Now, underwriting for term life insurance is different. If you want to get the lowest pricing, there’s going to be a medical exam, they’re going to order all your doctor records, it’s pretty interested it can take months to actually get an answer on that. Now, there are some policies out there that are coming out that are called Simplified Issue Term life insurance, and they can be a great value.

It’s just that the rates are kind of widely variable. In some cases, they don’t make expense don’t make sense, because they’re just too expensive. But other companies have really figured the process out. And they’ve gotten the prices. So competitive with the the fully underwritten plans, that you can almost get approved immediately and get amazing rates, but it’s got to be with the right insurance company.


Now, the fourth difference between final expense life insurance and traditional life insurance is cash value. So whole life insurance policies have cash value, they build up cash value within the policy, their whole life plans, which means they last your whole life instead of Term Life, which only last as long as the insurance is in place the term of the life insurance policy. So the Yeah, they do build up cash value. But I tell people don’t, don’t get too worked up about that because because we’re using smaller face amounts, they don’t build up a tremendous amount of cash value. It’s not like your policy is going to build up enough cash value to like take a Caribbean cruise or anything like that if you’ve got a $10,000 policy, nor nor should you use it in that way.


The cash value is not meant just to like pull the money out and spend it because let’s say you had $2,000 cash value build up into $10,000 plan. When you borrow that 2000 You’re going to be borrowing against the death benefit. So you if you did not pay the $2,000 back when you did pass away the insurance policy would only pay out $8,000.

So we think of cash value a little bit differently, what we try to do is get people to understand that you should leave the cash value alone. And then what we do is we set it up, that if you accidentally miss a payment, or you change banks and you miss a payment, or there’s a banking glitch or something like that you have cash value, the policy will automatically draft that premium payment out of the cash value component to keep your life insurance policy in force.

And that way, if it takes two, three months for you to figure out there, oh, I switched banks and I forgot to call the insurance company. Now your policy is still in force. What you should do, though, is go back and repay those payments, to get all the cash value back in the policy, it’s a really nice financial safety net. The other thing, some policies will allow you to do with the cash value, if you decide you don’t need the policy anymore, you can do what’s called a reduced paid up and say you had $2,000 worth of insurance.

With cash value in the plan, you could take a reduced pay up. And that might get you, you know, I don’t know three to $4,000 worth of permanent insurance that you never have to make another payment on. So there’s different ways around that just, you need a smart agent to kind of help you understand what’s going to be the best option for you.


The fifth difference between final expense life insurance and traditional insurance is the policy term. Now obviously, term life is called Term Life for recent, it’s got a specific term that is protecting for and it could be 10 years or 20 years or 30 years, whatever it is. So and final expense, as I already mentioned, it’s a lifetime policy, it’s a whole life insurance policy, it’s in the name, turn life’s Term, Whole life, his whole life that lasts all the way up until age 121 years old, you should never get a term insurance policy, a temporary policy for a permanent need. And when we’re looking at final expense insurance that is a permanent need, we know we’re going to pass away at some point in the future, we just don’t know when. And we hope it’s a long time from there.


Now, the traditional policies that are going to go after people looking for final expense insurance that are term, you want to stay away from those, because those types of policies are typically going to go up in price every five years and cancel once you get beyond age 80. So those types of plants and you often see them advertised, you can get started your first month for only $1.

That’s called a teaser rate don’t fall for such nonsense. But what ends up happening is people are enticed by that first low payment, and they sign on thinking they got a good deal. But the price is gonna go up every five years, typically every time your birthday ends with a one or a six, so like age 71 or age 76. And then it’s going to re-index to your current age, and the price is going to go up.

So often we see it’s in the first cycle or two, that the price is lower than the whole life insurance for that type of increasing price term. But then after that, the price increases get punishing, and it does not take long at all to actually save money by going with a whole life insurance policy. And the reason those term life insurance policies are so inexpensive, and they’re not terribly inexpensive, but they’re less expensive, is that most people end up canceling their policy because it got too expensive, or they outlive the policy. And the insurance either way, the insurance company gets to keep all the money and they never had to pay a death benefit. So we definitely don’t recommend term life insurance for final expense, life insurance.


And the sixth difference between life insurance and burial insurance cremation final expense and life insurance is the purpose. And we’ve kind of talked about this the whole way through here. But term life insurance should be for more temporary or temporary needs. You know, hey, I died at an unfortunate time and I just wanted to make sure that you know, these people, you know, family, whatever, spouses partners, loved ones are protected. God forbid something happens during that time.

And a lot of time, that’s going to be larger things like protect the mortgage or, you know, make sure that there’s there’s money to fund getting the kids through high school and college, or there’s money left there just to really replace your income so that your spouse isn’t just debt destitute, and losing the house and having to live on half that income. That’d be one of the worst things in the world, to lose somebody that you cared about so much, and then know that they didn’t care enough to protect you from that, you know, that very real possibility that you’re not going to make the entire life journey with them. And then they’re just going to be stuck in in many cases that are just in such a terrible financial She’ll situation that they never recover from that from the for the rest of their lives. So, yeah, don’t be that person just take care of your family.


And then of course, the purpose of final expense life insurance is just to pay for final expenses. Most of the time, kids are out of the house and there’s no real other financial obligations, you may have the house paid off. So it’s just one of the things and an interesting thing with final expense insurance is you may have the money in the bank right now. And you go I don’t need final expense life insurance. I got the money in the bank right now. You got the money in the bank right now. Because but what happens when people get older medical expenses.

So we see so often that people thought they were going to be okay, then medical expenses kick in, and then all that money they had saved up is no longer there for final expenses. And now they’re so sick that they can’t get a final expense life insurance policy. So if you just even if you’ve got the money, get the insurance policy because it just protects against life’s on knowns. And boy, I tell you what, there’s a lot of unknowns as we get older, isn’t there? Yeah. So that’s the six differences between final expense life insurance and traditional life insurance.

NOTE: Show notes are AI transcribed, so there may be some spelling or grammatical errors.

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