If “final expense insurance” makes you think of schmaltzy television commercials aimed at seniors, it might be time to change your perspective. Consider these findings from the 2012 LIC/CSG Final Expense Survey Report of 30 insurers:
- Thirty companies reported a total of more than $433 million in new final expense sales in 2012. This included nearly 700,000 policies issued for an average premium of $649.
- New premium was split fairly evenly with l3 “high volume” companies reporting more than $5 million in new sales (for 93 percent of the total) and 17 companies reporting less than $5 million.
- Twenty-seven companies reported a total of more than $1 billion in-force premium from more than 2 million policies with an average premium of $558.
- Median first-year commission reported was 130 percent. Median second-year commission was 12 percent. However, there was a wide range of both high and low commission companies with the majority of companies paying a total of 180 percent to 200 percent over the first six years.
Low cost, high efficiency
There is no clear-cut industry definition of what a final expense policy is, says Jeffrey Shaw, CLU, ChFC, executive director of the Life Insurers Council in Atlanta. Shaw loosely defines it as a small-face-amount life product with a death benefit intended to cover burial and other expenses associated with bereavement, but there are different ways of delivering that policy, he says.
Some policies are sold by large insurance marketing organizations (IMOs) that rely heavily on lead generation by TV and direct mail. Their agents—often captives—typically go out on one-interview sales calls to prospects with lower- to modest incomes. “They’re in and out of the house generally within 30 to 45 minutes and then they’re on to the next house,” says Shaw.
Doug Turner, senior vice president and chief marketing officer with the Londen Insurance Group in Phoenix, notes that there isn’t a great deal of differentiation among final expense policies. Londen Insurance’s subsidiary, Lincoln Heritage Life Insurance Co., is one of the longest-established insurers in the final expense market with roughly 6,000 licensed agents.
“Different companies are going to have different riders and things like that that they attach to their products,” he says. “But for the most part, final expense is a whole life product written to help pay the final expenses, not just funeral costs but any other final expenses that come up, such as doctor bills, flying people in from out of town for the services, things like that. Most companies have a modified death benefit for people who can’t qualify for the whole life product. And some companies will have a limited pay, like a 20-pay policy. That’s really about it. It’s a pretty vanilla-type insurance product.”
The modest premiums for the coverage require insurers to underwrite high volumes of business. A key to processing that business effectively is efficient underwriting, and the LIC/CSG survey found that 94 percent of new premium reported in 2012 was through some form of simplified underwriting.
“If you’re going out and waiting for medical records or trying to do any lab reports or anything like that, it really just isn’t going to work from a cost-expense standpoint,” Shaw says. “That’s where the simplified issue process has really taken over.”
From a high-level perspective, Turner qualifies prospects as those age 50 and older. That’s the starting point; from there, Lincoln Heritage refines its target markets.
“When we do our direct mail program, we do not want to mail a 60-year-old who’s making $100,000 a year,” he says. “Obviously, he already should have the financial means to take care of his funeral and that’s a waste of time for us and it’s a waste of time for our agent.”
See also: Making final expense more profitable