Here at Broadnax, we are transparent and want to provide our current and prospective clients with as much information as possible in order to make an informed purchasing decision. There are times when people decide not to purchase final expense insurance because it may be too expensive due to being simplified issue versus fully underwritten or does not fit their current and future financial needs.
A reason people choose not to purchase final expense insurance, in general and not specifically from us, is normally due to the small death benefit. Although we are able to spruce up your final expense insurance policy in order to provide more coverage with a minor increase in premium, the death benefit may still be too small to fund an estate, business asset purchase, or to pay off many large bills and debts at at time.
For example, if you intend to be or are the designated beneficiary of a final expense insurance policy, and the insured owns a home you would like to have, this type of policy will not provide enough funds to continually pay the mortgage payments or to payoff the home.
Please understand that it is not always beneficial to provide a large amount of death benefit to a designated beneficiary. This is because an insured person with a large amount of debt will be required to pay these debts off even after death. Although creditors are relatively the last to claim funds from an estate, the designated beneficiary is the absolutely last person entitled to any remaining funds after all creditors have been satisfied. However, final expenses take priority over creditor claims. Although creditor claims can be included in final expenses, they are normally minor and small in amount. Final expenses primarily relate to the funeral and burial or cremation expenses of the deceased insured and must be paid for. If there are not enough funds to pay final expenses with a life insurance policy, in general, the executor of the estate will bear the remaining expenses, normally creating a financial burden. If there are not enough funds to pay creditors after final expenses have been paid, the executor of the estate must designate the estate insolvent. Although the designated beneficiary receives no money for their self, final expenses will be paid and some creditors may be satisfied while any unpaid creditors will have to bear the loss. Therefore, for an insured with large debts, a higher death benefit leaves more funds to pay creditors and potentially less or no funds remaining for the designated beneficiary.
Final expense insurance is suitable only to provide a small amount of income replacement to fund final expenses. Final expense insurance was not designed to provide a large amount of income replacement to fund the takeover or buyout of assets, fund large liabilities, or to leave a large sum of money remaining to a designated beneficiary after all final expenses and creditors have been paid.
Most policyowners only want to leave enough funds to cover their final expenses, which is why many people do choose to purchase final expense insurance. Our client’s end goal is not purchase life insurance in order to provide a future lottery ticket to a loved one.
In essence, life insurance was legally created to cover final expenses. Although, throughout the development of the life insurance industry, life insurance has been used to protect many types of assets and pay many types of liabilities at a time.