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The 4 Main Types of Final Expense Insurance

Written by Stephen Hayward

May 25, 2022

The 4 Main Types of Final Expense Insurance

The 4 main types of Final Expense insurance plans: Guaranteed Issue, Graded, Modified, and Level. Understanding how they differ and how you can better meet your client’s needs is important. Let’s take a look at the 4 main types of Final Expense insurance in a little detail:

Guaranteed Issue Final Expense

The most straightforward of the Final Expense plans would be the Guaranteed Issue. Generally, Guaranteed Issue Final Expense plans will have a streamlined application and no health-related questions, however, carriers will often have some limitations on these Final Expense plans like; issuing age limits, reduced face values, or modified death benefits where they will return premiums plus some interest for the first few years of the policy. The other thing you may find is many of the Guaranteed Issue Final Expense policies will not come with any additional riders. The most important thing about Final Expense policies to note is while your client will have guaranteed coverage these premiums will also be the highest of the 4 main types of Final Expense insurance.

Normally, Guaranteed Issue Final Expense plans are used to serve clients who have multiple or severe health issues and would normally be excluded from securing insurance with standard or graded rates. Some of these health conditions may include but are not limited to, active cancer treatments, renal disease, organ transplant, HIV/AIDS, and illnesses that would limit life expectancy.

Some carriers will have higher face values (up to $40,000), and you will also see different issue ages, as low as 40 or as high as 85. They may also have better death benefit conditions, like improved interest rates on the premiums returned or shortening the amount of time until full death benefits are available. While riders are rare, there will still be some insurance companies offering built-in riders for a chronic illness or accidental death on Guaranteed Issue Final Expense plans.

Graded Final Expense

One of the other 4 main types of Final Expense policies is a Graded Final Expense policy. Graded Final Expense policies generally have a waiting period before the insurance carrier will pay out the entire death benefit to a beneficiary. With a Graded Final Expense policy, the waiting period will be from 2 to 4 years but if a non-accidental death happens before the waiting period is up, the policy will generally pay a percentage of the policy’s death benefit.

Here are a few examples of how a Graded Final Expense policy may pay out:

  • If a non-accidental death were to happen within the first year, the carrier may only pay out 25% of the death benefit.
  • If a non-accidental death were to happen in the second year, the carrier might only pay 65% of the death benefit.
  • For a non-accidental death within the first two years, the carrier may not pay out on the policy.
  • For a non-accidental death in the third year or beyond, the carrier will probably pay the full death benefit.

 

Modified Final Expense

Similar to Graded Final Expense policies, Modified Final Expense policies look at health conditions that could possibly place your client in a more restrictive Modified Final Expense Plan. These may include recent cancer, stroke, alcoholism, angina, or aneurysm. Like many of the other 4 main types of Final Expense plans, there’s a two-year waiting period before the carrier pays the total sum of the death benefit to a beneficiary with modified policies. The Modified Final Expense policy will only pay a return of premium plus a predetermined percentage of interest if the death occurs before the two-year mark.

Here are a few examples of how a Modified Final Expense policy may pay out:

  • If a non-accidental death were to happen within the first or second year, the carrier will return the client’s premiums paid, plus 10% interest on those premiums.
  • For a non-accidental death in the third year or beyond, the carrier would probably pay the full amount of the death benefit.

Many people think Final Expense policies are strictly for older individuals. Final Expense insurance policies are purchased for a wide variety of ages to help protect their family in the event of their untimely passing. Many individuals will also increase their face amount to help cover mortgage payments or the tuition for their children’s college expenses. You will find most people who qualify for these are clients with less than perfect health and/or have a health condition that is recent or chronic in nature, which would prevent them from getting a more traditional Whole Life policy.

Level-Benefit Final Expense or Simplified Issue Traditional Whole Life Final Expense

You will find Level-Benefit Final Expense or Simplified Issue Final Expense plans will have the most cost-efficient premiums and will often give you the greatest selection of riders your client can add to the policy. Level-Benefit Final Expense or Simplified Issue Traditional Whole Life Final Expense policies usually have the most flexibility when it comes to age restrictions and face value. With the face value of the policies going up to $100,000 with a Simplified Issue Whole Life policy and issuing ages starting at 0, these products are very versatile to fit most clients’ needs.

The biggest thing about the Level-Benefit Final Expense or Simplified Issue versus the Graded, Modified, or Guaranteed Issue Final Expense plans is your clients need to be in good or excellent health for the underwriting. The carriers may also have two types of rates available: a preferred rate and a standard rate class. Someone with no prescriptions and in excellent health may qualify for the preferred rate class. Whereas someone who may be on some medications but does not have any major health issues may only qualify for the standard rate class.

Helping Your Clients Choose One of the 4 Main Types of Final Expense Insurance

When you have a good understanding of the 4 main types of Final Expense Insurance, you can help ensure your clients have a final expense insurance plan that meets their needs & protection goals. We have a quick reference download available you can use to help educate your clients on their final expense insurance options. Click here to download your “4 Main Types of Final Expense Insurance” guide now. We also have an introductory guide to Final Expense products you can use as a leave-behind to help with educating clients on the importance of Final Expense insurance products.

Tip: Use this needs analysis worksheet to help increase the face amount on your Final Expense insurance policy sales.

Agent Pipeline is here if you are looking for ways to increase your Final Expense sales. We will help you create an expansive portfolio in order to meet the needs of your beneficiaries. Give us a call at 866.562.8318 to see how we can help.

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