Insuring a proper farewell

Before he became director of marketing and assistant vice president at Oxford Life Insurance Co. in Phoenix, Michael Frahm worked as a certified financial planner. It was during that time he saw firsthand how important final expense (FE) insurance can be to seniors, especially those of limited means.

One day, he visited an elderly couple. The husband had just been diagnosed with terminal cancer and the wife stood to lose not only his pension, but one of two Social Security checks. Since they didn’t have a final expense policy, the couple’s savings would have to pay for his funeral and medical costs. “I couldn’t do anything for them because it was too late for him,” he recalls. “That’s why I take it to heart. It did leave her destitute, where she was not previously.”

Frahm and others who sell final expense insurance agree the product is experiencing heightened sales these day, because, unfortunately, stories like the aforementioned one are becoming more common as seniors and boomers see their savings dwindle, leaving them with little or no resources to pay for a funeral that can cost an average of $6,560 (according to a 2010 survey from the National Funeral Directors Association).

“Folks don’t have the money in savings,” Frahm states. “Typically this market is going to be for clients that are actually living Social Security check to Social Security check. So we are seeing a definite increase.”
Statistics from LIMRA also underscore a rise in premiums in the final expense market.

Alejandro Chetto, a final expense insurance agent with Golden Memorial Plan/Lincoln Heritage in Fairfield, Calif., says this product is typically purchased by lower to middle-income seniors, with annual resources of between $10,000 and $50,000. He’s also seeing a trend whereby the children of baby boomers are buying final expense insurance if their parents cannot afford it.

Yet affluent seniors can benefit from this type of insurance as well. It not only preserves assets that could be left to heirs, it also prevents squabbling among the children over who’s going to pay for the funeral. “That’s why they establish a separate final expense policy—just so the kids don’t become enemies,” Frahm says.

Ease of underwriting
There are many reasons why a senior would purchase a final expense policy rather than traditional life insurance (or buy both). For one, it’s cheaper due to smaller face amounts. And unlike life insurance, the FE policy is less complex and easy for a client to understand.

But perhaps the top factor that makes an FE policy attractive to a potential buyer is a less rigorous underwriting process, specifically when it comes to a senior’s medical history, which, in some cases, might make a life policy cost prohibitive.

“[Clients] can have some minor health problems and still be able to qualify for a plan without going through major underwriting,” confirms Ron Dudas, an advisor with Senior Advocate Services in Gilbert, Ariz. He sells final expense insurance for several carriers.

That doesn’t mean, however, the policy is handed out to just anyone. Typically, the cutoff age is 85, and someone recently diagnosed with a terminal medical condition would not qualify.

A simplified underwriting process further means that most policies can be approved quicker, sometimes at the point of sale, after the agent does the risk assessment. “The producer sees the [client], tells them they are approved and gives them a conditional receipt right then and there,” Frahm says. “The policy is issued in a day or two.”

Besides the ease of underwriting, the lower cost of a final expense policy is also a plus to many seniors. According to Dudas, face amounts can range of $5,000 on the low end up to $30,000. Therefore, monthly premium costs run from an affordable $35 to $200 a month.