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Alternatives to Final Expense Insurance

Guest post by: Alston Balkcom

Article Overview: Final expense coverage is also called funeral insurance or burial insurance. This kind of insurance is simply a life insurance policy with a small death benefit. Most people will find that other types of life insurance will be better alternatives.

Alternatives to Final Expense Insurance

Final expense coverage is also called funeral insurance or burial insurance. This kind of insurance is simply a life insurance policy with a small death benefit. Most people will find that other types of life insurance will be better alternatives. These small death benefit policies is typically sold to an insured with the idea that the estate of the insured cannot afford the funeral. This averages around $8,000. The insurance plan is designed to cover those expenses. There are some drawbacks to this type of policy, however.

When a beneficiary is named on the plan, and the contract pays the death benefits, the money belongs to the beneficiary. They can use the proceeds any way they decide to. There is no legal obligation or requirement that the money be used to cover the decedent's final expenses.

If the estate is named beneficiary, then the money must be used to pay ALL debts of the estate. This means that, depending on the financial status of the recently departed, and how the assets are allocated towards debts,. Funeral costs may not be paid for..

Also it's very uncommon for the only financial need of the loved ones left behind to be the funeral costs. If the family needs help paying final expenses, most likely there are going to be additional ongoing expenses that will no longer be able to be met. This may include utility costs, taxes, additional child care costs. Extra money may now be needed to pay for the expenses that the insured used to take care of.

Lastly, the cost of insurance for these particular types of plans, relative to the coverage amount, is very expensive. Sometimes it's disguised by breaking the payments up by the month, or by having preset "age group" rates where as the insured ages, the rates automatically go up.

A big benefit to this type of contract, is because it is written for a relatively low face value, the underwriting process is more lenient. You can buy a final expense life insurance plan as either a whole life policy or a term policy (which typically will expire and be non-renewable after the age of 80). There is no medical examination, simply a few medical questions that have to be answered. Accordingly, these life insurance policies will either have a waiting period before the death benefit will pay out (typically two years), or will have a graded death benefit payment over several years, until the full death benefit amount is payable. This helps reduce the adverse selection losses where people wait until they are near death before buying insurance coverage.

Like any other line of insurance, life insurance is a tool - a financial tool. In order to select the proper tool, the job must first be defined and defined carefully. Is there a time in the foreseeable future when insurance won't be needed? If the goal of the insurance is to put children through school, the answer is yes. If the goal is asset transfer outside of the estate, to avoid paying estate taxes, the answer is no.

Once the goal is set, the next step is comparing product features and premiums. If the cost of a $10,000 contract is close to the cost of $100,000 of coverage for a similar time period, obviously the larger plan amount is the better buy. Of course, the larger plan amount will require more medical information, and it's possible a potential insured cannot qualify for the larger amount based on health status. The point, of course, is to compare choices, both cost and coverage, to the Final Expense Insurance, to see which one fits both the goal and the budget. An insurance agent, familiar with both your goals and personal situation, is the best place to start discussing available options.

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Article Tags: death benefit, final expense insurance, funeral insurance, life insurance policy
Referred by: http://www.searchengineworkshops.com



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