Final expense insurance should be a permanent whole life insurance plan that covers you for the rest of your life. It should build cash value so that you can draw from it if you have an emergency. It should also pay dividends annually- these are portions of the insurance company profits. It should also NEVER rise in cost.
Its usually a modest policy that covers funeral costs and the small debts left behind. $5,000 to $25,000 is the typical death benefit. But there are times when people need more. they have a younger spouse dependent on their income or pension. They have a large mortgage that needs to get paid. They have a dependent adult child. They want to leave money to a grandchild or favorite charity. In those cases, plans are available at any level you wish.
The big question for any final expense plan is “Does it make financial sense?”. Would I be better just saving the money myself? If you look at many of the heavily advertised final expense policies, the answer is YES it would be better to just start a savings account and add to it monthly. Why? Because you are likely to pay a lot more into the policy than your family will ever get out. For example, if you look at a Colonial Penn policy, the average 65 year old will pay more into this policy by the age of 74 than the family will receive when they pass away. After age 74, the premium payments become pure profit for the insurance company!
So the best way to analyze whether a policy makes sense is to look at when you will have paid more in than you will get out. The best final expense insurance plans are designed so that the insured NEVER pays more in than their family will receive upon their death. These plans called 20 year pay plans guarantee that the policy is paid in full at the end of 20 years and that the amount paid in is significantly less than what your family will get out.
For example one of our favorite policies for a 65 year old provides $15,000 in coverage. For a female, it costs $54.77 a month. The policy is paid in full at 85 BUT coverage continues for life. The total paid for this policy at 85 is $11,700 (that’s premiums paid minus dividends received) Then from 85 on, there are no premiums due. Instead the insured will actually make money in the form of dividends of $200 plus per year. On top of that the insured can access real cash in the policy equal to the amount she put in at anytime!
So the best way to evaluate a final expense plan is to determine at what point if ever your putting more in than your family will get out. We have plans that avoid that result in a BIG way. They make sense at any level of coverage. Why? Because the best final expense plans are plans run by policyholders for policyholders. They pay lower commissions to agent. They don’t spend money on expensive advertisements, and they don’t pay 7 figure executive compensation. And to keep the risk down, they require in person signatures on the application and cant be purchased over the phone or online.