GUARANTEED-ISSUE VS. SIMPLIFIED-ISSUE FINAL EXPENSE LIFE INSURANCE: WHAT'S RIGHT FOR YOU?
Final expense insurance is a great option for seniors who can't get traditional life insurance, but not every final expense policy is the same. Get the wrong policy and you could be stuck paying way more than you need to. Read on to learn about guaranteed-issue vs simplified-issue final expense and determine which type is best for you.
As you get older, you’re likely concerned about how your loved ones will pay for your final expenses. Perhaps you’ve outlived your term life insurance (congratulations!) or your whole life policy’s death benefit isn’t entirely sufficient—if you even have life insurance at all!
Fortunately, there’s a solution, no matter your age or medical conditions. You’re probably heard of final expense life insurance on TV, but there’s still a great deal of confusion that surrounds this form of insurance.
Final expense life insurance is an effective, low-cost method to ensure your last wishes are honored and your loved ones are free to handle nothing other than healing through their grief.
Final expense insurance is frequently considered by those between the ages of 50 and 85. It’s sold in one of two forms: “guaranteed-issue” or “simplified-issue.”
Read on to learn more about guaranteed-issue and simplified-issue final expense insurance and which best accomplishes your final wishes.
WHAT IS GUARANTEED-ISSUE FINAL EXPENSE INSURANCE?
If you’ve ever purchased a traditional life insurance policy, you were likely required to medically qualify in a process called “medical underwriting.” Underwriting requires you to visit a doctor and undergo an exam to determine what risk you pose to the insurance company. In other words, how soon they can expect to have to pay your policy out.
If, for example, your exam shows a history of heart problems, the insurer may still decide to sell you a policy. But they’ll likely charge you a higher premium to offset the added risk to the insurer. If, however, you’ve been diagnosed with a terminal illness, the insurance company will likely deny you coverage because of the probability you’ll soon pass away. (And thus, cost the company far more money than you’ve paid in.)
On the flip side and as its name implies, if you apply for guaranteed-issue final expense insurance, you are guaranteed a policy.
Because there’s no medical underwriting or health questions to answer during the application process, premiums are often higher than a comparable and fully-underwritten policy. For some though, such as the terminally ill, guaranteed-issue policies are the only option.
Guaranteed-issue life insurance has a "graded benefit". This is unlike other forms of life insurance, which provide level coverage. With level coverage, the death benefit says the same from day one of the policy being in force.
What is a graded benefit?
The “benefit” of a life insurance policy is the policy’s total face value or death benefit—how much it’ll pay out to your beneficiary upon your death.
When insurers stipulate a graded benefit of guaranteed-issue final expense insurance, it’s to offset the risk of insuring customers who have not undergone any sort of underwriting.
If a policy provides a graded benefit, there’s a waiting period before the full death benefit is in force. This period is often between two and three years.
If you pass away during the waiting period of a graded guaranteed-issue policy, your beneficiary would receive a full refund of premiums paid. That often includes added interest or an additional percentage. In the end, your beneficiary would still receive a larger benefit than what was paid to keep the policy in force.
At the end of a graded benefit period, the policy’s full face value comes into effect. If, for instance, you purchased a $10,000 guaranteed-issue life insurance policy with a two-year graded period and passed away two years and one day later, your beneficiary would receive the full $10,000.
WHAT IS SIMPLIFIED-ISSUE FINAL EXPENSE LIFE INSURANCE?
A medical exam is often required to purchase most life insurance policies unless the policy is guaranteed-issue. Simplified-issue final expense insurance is still underwritten but doesn’t involve an exam or doctor’s visit (see why it’s called simplified-issue?!).
Instead, you must answer a series of health-related questions on your application to determine your insurability.
Though questions differ from insurer-to-insurer, most applications ask some variation of:
- Do you use tobacco?
- Do you have a terminal illness?
- Have you been diagnosed with HIV or AIDS?
- Do you have any heart conditions?
- Have you had a stroke?
You are generally disqualified from purchasing a simplified-issue final expense policy if you answer yes to one or more of these questions (excluding tobacco use). Ultimately, it depends on the criteria of the insurer.
Because of this less-intensive underwriting process, the premiums of a simplified-issue final expense insurance policy are usually lower than a comparable guaranteed-issue policy. But, they’re still usually higher than that of a comparable fully-underwritten policy.
The benefits are always level.
With simplified-issue final expense insurance, the insurance company must pay your beneficiary the full death benefit as soon as the policy is in force. Additionally, the death benefit stays level throughout the entire time the policy remains active.
If you purchase a simplified-issue final expense policy with a $10,000 death benefit and unfortunately passed away the next day, your beneficiary would receive the full $10,000 as long as you were honest with your answers to the application’s health questions.
WHAT TYPE OF FINAL EXPENSE INSURANCE IS RIGHT FOR YOU?
The choice between guaranteed-issue and simplified-issue final expense insurance is entirely dependent on your health.
You should generally treat guaranteed-issue policies as a last resort for covering your final expenses. Since anyone can qualify for a guaranteed-issue policy, the premiums are higher than comparable underwritten policies.
However, if you have health issues, a guaranteed-issue policy is ideal for immediate coverage. As long as you can pay the cost of premiums, you’re guaranteed to be covered by the policy.
On the other hand, simplified-issue final expense insurance is ideal for those who may medically qualify for an insurance policy. Since the underwriting process isn’t as in-depth as other life insurance policies, you only need to answer a few simple questions to qualify.
Because of the requirement to answer medical questions, you’ll also have lower premiums to pay with a simplified-issue policy vs. a guaranteed-issue policy.
If you enjoy good health and don’t need immediate coverage, you should apply for simplified-issue final expense insurance first. After all, it doesn’t cost anything to try! If you’re denied for any reason or need immediate coverage, a guaranteed-issue policy is your best bet.
TAKING THE NEXT STEP
Once you’ve decided which type of final expense life insurance is ideal for your situation, you must next determine how much coverage you need.
According to the National Funeral Directors Association, in 2017 the average cost of a funeral and burial was $8,755 and the average cost of a funeral and cremation was $6,260.
Final expense insurance is uniquely geared toward covering these end-of-life costs. Whereas fully-underwritten policies often have a large enough death benefit to cover final expenses, debt, and the ability to leave a gift behind, final expense insurance is best used for, well...final expenses.
Of course, any remaining benefit can be used for anything by your beneficiary. This is especially true considering life insurance payouts avoid the lengthy probate process. But the primary intent of final expense insurance is to cover your funeral arrangements.
Buying Final Expense Life Insurance
Before you purchase final expense insurance, you’ll want to decide who to designate as your beneficiary. This is the person who will receive the death benefit upon your passing. Name someone you trust to carry out your last wishes the way you’d like. Give them any advice for how you’d like excess funds to be handled in the event your death benefit is larger than the cost of your final expenses.
Next, you should compare your options online, as with any major purchase of this caliber. Comparing policies from a number of insurers will help you determine which policy meets both your needs and budget.
Once you’ve found a policy you like, you can enroll quickly and easily online or over the phone.
Even if you can’t afford final expense insurance that covers all the costs of your desired last wishes, some coverage is always better than none.
Final expense life insurance is a testament that you’ve thought of your loved ones’ well-being even after you’ve moved on. An insurance policy helps them focus on healing without the added concern of how to pay for final expenses.