FINAL EXPENSE: UNDERSTANDING THE BASICS Flashcards
What are the 4 main types of final expense insurance?
There are four main types of final expense insurance:
1. Guaranteed Issue
2. Graded
3. Modified
4. Level (Preferred or Standard Rating)
Guaranteed Issue features:
- Benefit for Accidental Death: Guaranteed approval, no waiting period, full death benefit.
- Benefit for Non-Accidental Death: Waiting period, death benefits is equal to return of premium + interest rate for a specified number of years.
- Underwriting: No underwriting
Graded features:
- Benefit for Accidental Death: No waiting period, full death benefit.
- Benefit for Non-Accidental Death: Waiting period, death benefit is equal to a percentage of the death benefit
- Underwriting: Simplified issue underwriting
Modified features:
- Benefit for Accidental Death: No waiting period, full death benefit.
- Benefit for Non-Accidental Death: Waiting period, death benefit is equal to return of premium + an interest percentage declared at policy issue.
- Underwriting: Simplified issue underwriting.
Level (preferred or Standard Rating) features:
- Benefit for Accidental Death: No waiting period, full death benefit.
- Benefit for Non-Accidental Death: no waiting period, full death benefit.
- Underwriting: Simplified issue underwriting.
What are the three main features of concern for all final expense policies:
- Benefit for Accidental Death.
- Benefit for Non-Accidental Death.
- Type of Underwriting
Discuss Guaranteed Issue Insurance:
Applications for guaranteed issue final expense plans are straightforward with no health-related questions. Carriers that provide these product will often limit issue ages, offer reduced face values, and modify the death benefits by offering return of premium plus an interest rate for the first two to three years of the policy. Many guaranteed issue final expense policies do not come with additional riders. the premiums on these products are usually the highest that you will find. You’re guaranteed coverage - but at the highest rate.
Typically, guaranteed issue final expense plans are issued to clients with severe or multiple health issues that would prevent them from securing insurance at a standard or graded rating. These health conditions may include (but aren’t limited to) renal disease. HIV/AIDS, organ transplant, active cancer treatments, and illnesses that limit life expectancy. Many times, these prospects have difficulty with performing activities of daily living (ADLs) or are in nursing home care. in addition, clients for this type of plan could have severe legal or criminal histories.
It’s important to note that some carriers will offer better issue ages – as low as 40 years old or as high as age 80 for guaranteed issue policies. Some will also allow higher face values, up to $40,000, and other w8ill grant better death benefit conditions by improving the interest rate with the return of premium or lessening the number of years until a full death benefit is available. There are even carriers that will offer built-in riders, such as chronic illness and accidental death riders.
Discuss Graded and Modiefied Final Expense:
Graded and modified final expense plans are very similar, but no two graded or modified final expense plans are the same. Some carriers will offer policies that have issue ages as low as 20 years old and up to 89 years old, with face values as high as $40,000.
Graded final expense policies usually have a two-year waiting period before the carrier pays the entire death benefit to a beneficiary. Some carriers don’t pay out a full death benefit on the traded policy until the fourth year. If non-accidental death occurs before two years, the policy will only pay a percentage of the death benefit. for example:
- If on-accidental death happens in your one, the carrier might only pay 30 percent of the death benefit.
- If non-accidental death occurs in year two, the carrier might only pay 70 percent of the death benefit.
- For a non-accidental death in year three or later, the carrier would probably pay 100 percent of the death benefit.
Modified final expense policies, similar to graded plans, look at health conditions that would place your client i a more restrictive modified plan. These may include recent alcoholism, angina, stroke, aneurysm, or cancer. With modified policies, there’s usually a two-year waiting period before the carrier pays the entire death benefit to a beneficiary.
If non-accidental death occurs before two years, the policy will only pay a return of premium plus a declared percentage interest. For example:
- If non-accidental death happens in year one or two, the carrier will return the paid premiums, plus 10 percent interest (general average) on those premiums
- For a non-accidental death in year three or later, the carrier would probably pay 100 percent of the death benefit.
Graded or modified policies aren’t only for older clients. Generally, you’ll find that clients who qualify for graded or modified final expense plans usually have less-than-perfect health and a specific health issue that is recent or chronic in nature and would prevent them from getting a standard or more traditional, whole life policy. For instance, they may have chronic obstructive pulmonary disease (COPD), diabetes with high levels of insulin, or have had heart attacks in the past. Some products have specific health issues that will get preferential treatment from the carrier. For example, there are carriers that will issue policies to younger adults in their 20s or 30s who could have chronic conditions like diabetes.
Discuss Level-Benefit Final Expense or Simplified Issue Traditional Whole Life:
Normally, level-benefit traditional final expense or simplified issue whole life plans have the cheapest premiums and the largest availability of additional riders that clients can add to policies. this type of product usually brings the most flexibility in the form of issue age and face value, and in some rare cases, participating dividends.
While typical final expense carriers have limits on age, there are carriers that view their traditional whole life product, not only for use as final expense, but as insurance policies available for all types of age groups, including juvenile, young adults, and clients looking for protection and investment opportunities. Traditional whole life insurance products can go up to 7100,000 in a simplified format and can start at age 0, so these products can be very versatile to meet a clients’ needs.
Unlike guaranteed issue, graded, or modified final expense plans, traditional final expense plans are typically for clients who are in good or excellent health. Depending on the insurance carrier, both a preferred rate class and standard rate class may be offered. A client in excellent health with no current prescription medications or health conditions may qualify for a preferred rate class with the lowest premiums possible. A client in good health – even with a few maintenance medications, but no significant health issued – may qualify for standard rates written outside of a true final expense need, an illustration may be required to accompany an application.
Note: In a “participating policy” (also known as a “par” policy) the insurance company shares the excess profits (divisible surplus) with the policyholder in the form of annual dividends. Typically, these “refunds” are not taxable because they’re considered an overcharge of premium for “reduction of basis’).
If the client does not qualify for Simplified Issue Final Expense, what should you do?
If simplified issue final expense won’t work for a client, then a GUARANTEED ISSUE policy is the way to go. These policies come with a higher premium; however, the carrier can’t deny any qualifying applicant from purchasing coverage. If you client is relatively healthy or has some health issues that wouldn’t preclude them from a policy, you can move onto the next phase of prequalifying.
What is Simplified Underwriting?
Simplified underwriting refers to underwriting that requires no medical or physical exams. Simplified underwriting allows policies to issue within a matter of days, or even instantly with telephone underwriting or an e-application process.
