Do you watch daytime television advertising? Last month it was Medicare Plans, this month it is funeral expense or final expense plans. The problem is that these advertised plans are cookie cutter plans and people may have better options to consider. TV doesn’t explain those options, so if these type of insurance plans interest you talk with a qualified insurance agent to get your best value and read the rest of this article.
Know that you may have options. There are basically three options for a death benefit. First, if people can health qualify; apply for a traditional whole life policy (or Universal Life (UL). These policies will provide more death benefit for less premium because they will only accept applicants who can health qualify. Simply, purchasing a health underwritten plan for final expense or burial may be your best value. Note, insurance companies have different underwriting criteria; therefore one company may issue a policy and another decline issue.
A second option is one of the two types of modified issue whole life plans. These plans offer a limited death benefit for the first, second and third years. An example would be to pay 25% if death occurs in the first year, 50% the second, 75% the third and a full benefit from the fourth year forward. This type of plan is a good fit for people with health conditions that are not too severe. This may be your second best option for a new purchase.
For people with more severe health conditions they can apply for a guaranteed life insurance, also called burial plan. These plans have reduced benefits during the first two or three years. The guaranteed plans are advertised on TV and are only your best option for a new purchase if you cannot health qualify for any other type of coverage.
What if you currently have life insurance? If so, you have options. Whole life plans contain a non-forfeiture benefit so that the insured can opt to take a reduced benefit payable at death or a full death benefit for a lesser period of time. i.e. a person with a $50,000 policy may be able to stop paying premiums and still have a $35,000 benefit payable whenever death occurs. Other non-forfeiture options exist and you should talk with an insurance agent to gather more information.
Many people with life insurance have UL insurance policies. These policies have been popular since about 1980. UL combines a death benefit with a side fund of cash value that pays a current interest rate. In these plans the cash value helps pay the death benefit. Both the death benefit’s mortality rate and the interest rate can change based on the current interest rates. The interest rates in the 80s and 90s were a lot higher than today’s interest rates. Due to a drop in interest rates, many of these plans have dropped their interest rate to the point where the policy may no longer sustain itself and terminate prior to one’s death if you do not increase the premium you are paying.
What happens to life insurance values if one goes on Medicaid? It is prudent to plan for the worst and hope for the best. Most people could not withstand paying for a multi-year extended nursing home stay. If someone goes onto Medicaid, they are allowed to keep life insurance with less than $1,500 of cash value. Would you think of asking today: “how much cash value will my plan have in 5, 10 or 20 years”? You should. Gather information. An insurance agent can help you understand your options. It is also prudent to see an elder law attorney specializing in Medicaid for planning purposes. In these cases “Funeral Trust Plans” become viable. If set up properly funeral trust plans or pre-paid funeral plans are exempt from Medicaid.
So, are Final Expense Life Insurance Plans as advertised on TV good? It’s better to understand what options you have and which may best fit your situation. Feel free to contact our office for further information on burial plans or any type of plan described above.
Steven A. Buttice is the president and founder of Medical Reimbursement & Management Services, Inc., a firm specializing in issues affecting seniors, including seminars and consultation on Medicare Plans, Long Term Care, Health Insurance products and other types of insurance, claims issues, and sales/service of insurance products since 1984. Offices are at 809 W. Detweiller Dr., Peoria, IL 61615. Tel: 693-1060 website www.MRMS-INC.com.