11 Things I Wish I'd Known About Final Expense Insurance Companies Before Signing a Policy

Delving into the realm of final expense insurance companies and their policies, it's plausible to find oneself confronted with a wave of overwhelming information. The intricacies of the industry are multifaceted, encompassing aspects from actuarial science to contract law, behavioral economics to risk management theory. As such, it's prudent to carefully dissect this seemingly convoluted terrain prior to committing to a policy. Reflecting on my own journey, I wish to impart eleven insights that I wish I had been aware of before I signed my final expense insurance policy.

• Understanding the Purpose: Final expense insurance, often referred to as burial or funeral insurance, exists to cover the costs associated with one's end-of-life expenses. The policy's purpose is thus not to offer a substantial inheritance but to alleviate the financial burden that might otherwise fall on one's bereaved family members, including costs related to the funeral service, burial, medical expenses and legal fees.

• The Importance of Underwriting: Underwriting, the process by which an insurer determines the risk profile of a prospective policyholder, is a fundamental aspect of final expense insurance. Companies use this evaluation to set premium rates. Naturally, the less comprehensive the underwriting process - as in simplified issue policies - the higher the premiums tend to be.

• Graded Benefits: Some policies come with a "graded death benefit" clause. Essentially, this stipulates that if the policyholder passes away within a designated period (usually two years) of purchasing the policy, beneficiaries will not receive the full death benefit. Rather, they may only receive the premiums paid to date with a certain percentage of interest. It's crucial to understand this caveat, as it represents a trade-off between accessibility and immediate full coverage.

• Comparing Policies: Not all final expense policies are identical. While the basic principle remains the same, companies can vary significantly in their offerings. Therefore, comparison is key. Delving into the mathematical discipline of decision theory aids in understanding the concept of opportunity cost and ensuring you choose the policy with the highest overall utility.

• Reading the Fine Print: The contractual language in insurance policies is often complex, drawing deeply from the field of contract law. It is imperative to thoroughly understand all the terms, conditions, and exclusions before signing. If anything is unclear, it is advisable to consult with a legal expert.

• Dissecting Premium Structures: Premium structures can be level or increasing. The former means that premiums stay the same throughout the policy term, while the latter implies that premiums rise with age. The choice between the two would depend on factors like your current age, health status, and financial planning approach.

• The Role of Inflation: The impact of inflation is a critical factor to consider. A policy that seems ample today may not necessarily cover future costs due to decreasing purchasing power. Therefore, it's essential to consider policies with a benefit that accounts for inflation, a concept rooted in macroeconomics.

• Lifetime Coverage: Unlike term insurance policies, final expense insurance provides coverage that lasts a lifetime. It's crucial to understand that as long as premiums are paid, the policy will not expire.

• Cash Value Accumulation: Some final expense insurance policies offer a cash value accumulation feature. Over time, a portion of your premium goes towards building up a cash reserve which can be borrowed against if needed. This characteristic speaks to the behavioral economics principle of present versus future utility - the ability to access funds now versus the full payout later.

• Post-Policy Changes: It's worth thoroughly examining the provisions for making changes to your policy post-purchase. Some policies offer flexibility, while others are more restrictive. This can have significant implications, especially when considering potential changes in health, financial status, or beneficiaries.

• The Insurer's Financial Strength: Lastly, the financial strength of the insurance company should not be overlooked. Companies with high ratings from agencies like A.M. Best or Standard & Poor's are more likely to be reliable in terms of paying out claims, making them a safer option.

By sharing these insights, I hope to provide a roadmap for navigating the complex landscape of final expense insurance companies. An informed decision, after all, is the first step towards securing peace of mind for the future.

Reflecting on my own journey, I wish to impart eleven insights that I wish I had been aware of before I signed my final expense insurance policy.