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.
