Life Insurance Question...

[Joey Smith]

I'm a consumer and have a question about life insurance. When it comes to life insurance, I've read that most people recommend a term life policy. I'm 45, single, own my home (inherited) and due to my health, I'm on Disability. I've looked into Term Life policies and have either been turned down or given quotes with high rated. When it comes to Guaranteed Acceptance Whole Life, I've read where others have stated that these policies are over-priced and not worth it. What if that is the only type of policy I can get approved for and can afford?

Any Suggestions?
Joey

 

[DHK]

Welcome.

Why do you want life insurance?

 

[Joey Smith]

For a couple of reasons. One, I want to make sure my final expenses (funeral, etc.) are taken care of. Secondly, I want to make sure there are enough funds to cover any miscellaneous costs or expenses. I'm not looking to leave a "windfall" to my survivors. Just enough to cover everything involved with taking care of expenses related to a funeral, etc.

By the way, what are your (or other's) thoughts on those pre-need plans that funeral homes offer? My father had one through our local funeral home. The policy actually goes through an insurance company since the state I live in doesn't allow a funeral home to accept/hold on to money for a future funeral.

Also, I'm on a limited income and wondering what my options would be.

 

[DHK]

For what you're looking for, and truly your needs (and past underwriting), you're going to want what is commonly known as a Final Expense policy. These are whole life contracts but they are underwritten for smaller amounts to provide you with the coverage you need, even with impaired health.

However, it's not my particular area of specialization. There are plenty here who can help.

I'll tag @Todd King as one person who certainly knows this market.

Your handle says you're in Arkansas? Is that really your state? (I think it's the default setting for new posters.)

What state are you in? It matters because insurance is regulated on a state level and we want to be sure you get the right kind of plan available in your state by an agent who is (or can be) licensed to do business in your state.

 

[Joey Smith]

Yes, I'm in Arkansas.

 

[adjusterjack]

One, I want to make sure my final expenses (funeral, etc.) are taken care of. Secondly, I want to make sure there are enough funds to cover any miscellaneous costs or expenses. I'm not looking to leave a "windfall" to my survivors. Just enough to cover everything involved with taking care of expenses related to a funeral, etc.

Your paid off house could be your life insurance if you can't get life insurance at a reasonable cost.

Who are your survivors? Pick one you trust. Make a will with instructions to sell the house, pay your funeral bill and other debts and the heir keep the rest.

Avoid the beneficiary deed because that transfers the house to the heir immediately upon death and could leave the estate debt ridden with no money.

Make sure the heir has to probate the house and pay the bills from the sale. An option is that the heir pays the debts and keeps the house.

An estate lawyer will know how to write it up.

 

[titeye]

Although your house is owned free and clear, I do not agree it should be used in place of life insurance. You stated that your purpose for life insurance is to cover final expenses. Your house is not a liquid asset. It may take several months for it to sell. Until it does sell, you will have put your survivors exactly in the position you were attempting to avoid. They will have assumed the responsibility for your final expense obligations until they receive reimbursement proceeds from the sale of the house.
You are 45 years young. Regardless of the extent of your disability, I am fairly confident in your ability to find affordable final expense coverage.

 

[Joey Smith]

Thank you for that information. That is re-assuring to know. Last October, I got a pre-need policy through the same funeral home that handled my parent's funerals. About a month after my mother's funeral in 2016, my father went to the funeral home to pre-plan/pre-pay for his services. He asked me to go with him. He was able to pay everything up front in one-lump sum and due to Arkansas' funeral laws, the money for the pre-funding has to be held by an insurance company. My father also, at some point, got an additional $5,000.00 whole-life policy with me as the beneficiary. After my father passed away in 2018, I enquired through the same funeral home about setting up a pre-need policy. Like I said, it goes through a separate insurance company. I wasn't able to pay for everything upfront, so they stretched the payments out over 3 years to where I'm paying $65.05 a month for my pre-planning policy through NGL. I have also made additional payments towards it and it is due to be paid off sometime in 2023. Just recently, I applied for a guaranteed acceptance whole-life policy through Mutual of Omaha, which includes a limited accidental death rider, however, I didn't do enough research on the Mutual of Omaha policy. It has a coverage amount of $12,000.00 (probably too much coverage) with a monthly premium of $40.00. I figured out based on that monthly premium, that I will have paid into the policy the face value by the time I turned 70. My concern with a term-life policy is that the rate would be too high with my pre-existing conditions, even at the age of 45. Not to mention, that when the term expires, my rates will increase due to age and other factors. Anyway, due to the above reasons mentioned, I am second-guessing my decision to go with the Mutual of Omaha policy. As far as my will, that is already in order. I know the previous poster stated it isn't a good idea to create a beneficiary deed, but I did that last year. I'm just trying to fine-tune my estate planning at this point.

Although your house is owned free and clear, I do not agree it should be used in place of life insurance. You stated that your purpose for life insurance is to cover final expenses. Your house is not a liquid asset. It may take several months for it to sell. Until it does sell, you will have put your survivors exactly in the position you were attempting to avoid. They will have assumed the responsibility for your final expense obligations until they receive reimbursement proceeds from the sale of the house.
You are 45 years young. Regardless of the extent of your disability, I am fairly confident in your ability to find affordable final expense coverage.

 

[shonceman]

Thank you for that information. That is re-assuring to know. Last October, I got a pre-need policy through the same funeral home that handled my parent's funerals. About a month after my mother's funeral in 2016, my father went to the funeral home to pre-plan/pre-pay for his services. He asked me to go with him. He was able to pay everything up front in one-lump sum and due to Arkansas' funeral laws, the money for the pre-funding has to be held by an insurance company. My father also, at some point, got an additional $5,000.00 whole-life policy with me as the beneficiary. After my father passed away in 2018, I enquired through the same funeral home about setting up a pre-need policy. Like I said, it goes through a separate insurance company. I wasn't able to pay for everything upfront, so they stretched the payments out over 3 years to where I'm paying $65.05 a month for my pre-planning policy through NGL. I have also made additional payments towards it and it is due to be paid off sometime in 2023. Just recently, I applied for a guaranteed acceptance whole-life policy through Mutual of Omaha, which includes a limited accidental death rider, however, I didn't do enough research on the Mutual of Omaha policy. It has a coverage amount of $12,000.00 (probably too much coverage) with a monthly premium of $40.00. I figured out based on that monthly premium, that I will have paid into the policy the face value by the time I turned 70. My concern with a term-life policy is that the rate would be too high with my pre-existing conditions, even at the age of 45. Not to mention, that when the term expires, my rates will increase due to age and other factors. Anyway, due to the above reasons mentioned, I am second-guessing my decision to go with the Mutual of Omaha policy. As far as my will, that is already in order. I know the previous poster stated it isn't a good idea to create a beneficiary deed, but I did that last year. I'm just trying to fine-tune my estate planning at this point.

Depending on your actual health situation, you may be able to get a better rate on the $12,000, and also get a policy with immediate coverage instead of the 2 year wait on the MOO. As @DHK mentioned, companies that specialize in Final Expense can often issue at Standard or better rates when other companies would rate up or even decline (as you’ve discovered).

As far as it being too much coverage, it’s better to have too much than not enough! I don’t think your family would be upset if they had a little cash left after paying for everything, and might even find it really helpful. When my wife and I were very young and broke, we had to travel from Virginia to Arizona for my father-in-law’s funeral. Not only was it much more expensive than we could afford, but I had to miss several days of work, which put us even further behind. But after paying for the funeral, my mother-in-law had enough left over to reimburse all of her children for their travel expenses, which was VERY helpful. None of us wondered why Dad took out so much insurance (well, really, Mom took it out. But that’s another story!).

As far as paying the face amount by the time you’re 70, there’s a risk with any kind of insurance that you may pay more in than you’ll ever get back. 45 years on the break even isn’t bad at all. If you buy term at a much lower rate, but outlive the term (I’ve done it - twice.), how much will you have overpaid? If you’re an excellent driver and never have an accident (like me - no accidents for the last 30 years), how much will you have overpaid for car insurance? The point is, we buy insurance to cover what we can’t afford to cover out of pocket. So, if your kids can come up with $12,000 without suffering, or you have the ability yourself to set aside that much money in the short term, $40 might be too much to spend. If neither of those are true, $40 is a really cheap way to make sure it’s there when they need it, whether that’s sooner or much later.

 

[DHK]

As far as paying the face amount by the time you’re 70, there’s a risk with any kind of insurance that you may pay more in than you’ll ever get back. 45 years on the break even isn’t bad at all. If you buy term at a much lower rate, but outlive the term (I’ve done it - twice.), how much will you have overpaid?

While final expense policies may be different, here's the concept:

Either we fill the box (overpay up front), or we pay the curve (overpay forever as we get older).

This will have way too much information for a non-agent, but I think it's interesting.