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Life Health > Life Insurance

Final Examination

By David Port

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It wasn’t by design that Michael S. Feinberg, ChFC, entered the realm of final expense planning a few years ago. At the time, Feinberg, president and CEO of Synergy Financial Services, a direct insurance brokerage in Ashburn, Va., was content to be an insurance generalist, selling traditional life insurance policies along with some long term care products.

But over time, it began to dawn on Feinberg that something was missing from his sales arsenal. That something prevented him from fulfilling the needs of clients who were turned down in the underwriting process. When he did some research to learn what insurance products could fill that void, he discovered what that something was: final expense insurance.

“I learned that it could not only be lucrative for me to sell, but also that by selling it, I would be helping people I otherwise wouldn’t have been able to help,” he says.

A blue collar product
If your clients tend to be affluent seniors, final expense insurance isn’t a product you’re likely to recommend very often. Nor should it be, since affluent clients typically opt for the simple (and often tax-favored) route, specifying that final expenses be drawn from their estates upon their death.

“I’ve never sold or recommended a single final expense policy,” says Ellen Fairbanks, a financial planner for MD&A Financial Management in Pittsburgh. “There’s nothing wrong with final expense insurance. It just isn’t a product that’s suitable for the clients I work with. For them, the best course is usually to pay death expenses from the estate because those expenses are tax-deductible. It just doesn’t make sense to put that money out there early [to purchase final expense insurance] [when it can be] deducted from the estate after the fact.”

But not every advisor has a client base of affluent seniors with estates large enough to make final expenses a non-issue. Clients with little or no assets to pass on to their heirs — for whom the cost of final expenses represents a significant financial burden rather than just a drop in the bucket — are the types of people who need final expense insurance.

“Generally, someone with a sizable estate is not going to be a prospect,” says Shep Cutler, a principal at Columbia Management Group in Columbia, S.C., and a longtime final expense insurance specialist. “Our best prospects are blue-collar, middle-income individuals who are retired or semi-retired.”

The clients who tend to be most interested in final expense insurance lack significant savings and want to avoid placing a burden on their surviving spouse or family members. And, as funeral and burial costs continue to rise, the coverage is becoming more popular among those of more modest means.

Telling policies apart
The price of a typical funeral ranges from $5,000 to $10,000. Final expense insurance is best suited to clients who lack the financial wherewithal to cover that cost but can afford the relatively modest premiums for coverage — which average $500 per year, according to Cutler.

“That’s a very reasonable premium for many seniors,” he says. “When someone 65 years of age can get an extra $6,000 or $7,000 for his estate for $30 or $40 a month, that makes sense to him.”

Although a senior’s health is a factor with certain final expense products, most policies don’t require a medical exam and underwriting is typically limited or nonexistent. Premiums are primarily determined by a candidate’s age and many seniors can secure guaranteed coverage for $5,000 to $50,000.

Many seniors confuse final expense insurance with pre-paid funeral plans. Clearing up this misconception can be the key to making the sale. What sets final expense insurance apart from other options is flexibility. Pre-paid plans require the beneficiary to use the funds to purchase products and services from the funeral home that provided the coverage. With final expense insurance, the policyholder and beneficiary are not bound to a specific mortuary, funeral home or burial site, nor to specific prices for funeral-related products and services. What’s more, the death benefit may be used to pay for other related expenses incurred by family members, such as travel and unpaid vacation.

Not all final expense plans are equal, however. According to Feinberg, the vast majority of policies he and other final expense specialists sell are of the whole life variety. Term-based final expense products are available, often with premiums that are significantly lower than those of whole life policies (which typically cost more because they’re guaranteed- or simplified-issue), but neither Feinberg nor Cutler typically recommend them to prospects.

“Since no one can guarantee when death is going to occur, any kind of term policy is [inappropriate for final expense coverage],” says Feinberg. “Term insurance is best for people whose need for insurance is going to go away over time. Final expense insurance needs to be some form of permanent insurance. It needs to be guaranteed to last for the policyholder’s lifetime. A final expense [insurance] product that only lasts to age 80, for example, is a large gamble.”

Relative to other insurance products, final expense insurance remains a fairly straightforward product in terms of features and attributes. But that doesn’t mean that the sale is a no-brainer. Advisors who can distinguish between products offered by different carriers are at an advantage because they can expertly match clients to products with features that best meet their needs.

What’s more, final expense insurance plans are growing more complex. Add-ons, such as a nursing home rider, an accelerated death benefit and an accidental death benefit, make it increasingly important for producers to keep current with the latest products to hit the market.

“There are so many companies writing [final expense policies] now,” says Cutler. “Because we represent five or six companies, we have a pretty good grasp of the differences between the plans, so we can pick the product that fits the person. For example, some companies don’t make policies available to people [younger than] 50. That’s a factor when the client is 40 or 45 and wants a [final expense] policy. Some companies have more liberal underwriting while others have policies with built-in double indemnity. These are important distinctions to know.”

Another important feature that distinguishes one final expense product from another is the effective date of coverage. Many guaranteed-issue, whole-life-based policies come with waiting periods — usually in the range of two to three years. But people in good health are often better suited to simplified-issue plans that offer first-day coverage. To gain immediate coverage, however, the candidate must answer several medical questions. This shouldn’t be a concern for people in their 40s or 50s who are in good health, but may be a problem for older clients.

To avoid recommending an unattainable product, Feinberg relies heavily on a lead form, which he uses to match prospects with the policies that best suit them.

“Our lead form is pretty detailed, so it gives us a good idea of what to recommend to clients before we even talk to them,” he says.

Selling a commodity
So who’s most likely to buy final expense insurance these days? Typically, it’s people between the ages of 50 and 85 years old. According to Cutler, most policyholders want a policy mainly to cover the cost of their burial. However, some also use it to pay bills or as a means to pass money on to their children, church, or charity.

Feinberg has found that some of the best prospects have witnessed first-hand what happens when a family of modest means is blindsided with burial costs and other expenses it can’t cover.

While many prospects are shopping for policies for themselves, Feinberg has noticed that an increasing number of prospects are looking to purchase final expense insurance for their parents. Regardless of the end-user, however, most of his prospects are already leaning toward purchasing final expense coverage.

“People tend to come to us knowing they are interested in this product and they have a good idea of what it does,” he says. As a result, clients aren’t likely to raise objections to the product itself. What’s most important to them is learning about individual policies, picking the right product and having it issued quickly and easily.

Feinberg believes that, because final expense coverage has become somewhat of a commodity, it’s more about how the coverage is sold than what is being sold. This puts the pressure on carriers to make the process hassle — and pressure-free for the prospect.

A trend toward online purchasing of final expense coverage is also helping to make the sale easier. According to Feinberg, this approach works best with guaranteed plans for which no medical information is needed from the purchaser.

“More people are shopping online to get it out of the way without the sales pressure,” he says. “The trend seems to be toward quicker, easier policy issues.”

Lining up leads
As both a direct seller and broker of final expense plans, Feinberg puts a premium on effective prospecting techniques. And with the over-50 set becoming more Web-savvy, he says the Internet is by far his most effective prospecting tool. Numerous Web sites are available that make it easy for seniors to get a final expense insurance quote or submit a request for information without having to meet with an agent. Feinberg estimates that his company’s site yields at least 50 percent of his leads. The leads generated via the site, he says, are the best qualified because they usually come from people with a genuine interest in purchasing a policy.

Before deciding on how you will generate leads, consider your geographic location and the type of people who live in your target area. For example, the majority of Cutler’s clients live in rural areas and respond best to print advertising. Full-page advertisements placed in publications sent to the customers of rural electric cooperatives have proven particularly effective, he says. Because his clients live in small, close-knit communities, referrals are also an important lead source.

Regardless of how you find your leads, the key is to bring in the right type of prospect — seniors who lack the funds to pay for final expenses and who don’t want the burden of these expenses weighing on loved ones when they die.

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