Final Expense Life Insurance: Avoiding The Scam Trap

Final expense life insurance is a legitimate form of insurance that covers costs that accrue after death, such as funeral expenses, burial fees, and sometimes outstanding debt. However, there are many scams associated with this type of insurance that target the elderly. These scams often involve unethical insurance agents or companies that manipulate terms and omit critical details to trick people into buying a policy that is not in their best interest.

One common scam is the no questions asked life insurance policy, which promises coverage regardless of health status. However, upon reading the fine print, it is revealed that these policies do not provide full coverage for natural causes of death within the first two years. Another scam involves low-cost term insurance for seniors, which is often marketed as having locked-in pricing but increases in price every five years and cancels at age 80. Overpriced final expense coverage is also a concern, with some insurance agents attempting to sell more expensive plans or add unnecessary riders or provisions to increase their commissions.

To avoid falling victim to these scams, it is important to work with a licensed and reputable insurance agent and company. Be wary of unsolicited offers, requests for personal information, and policies that seem too good to be true. Always read the fine print and understand the terms and conditions of the policy before signing anything.

No Questions Asked Life Insurance

The problem with this plan is that, although it guarantees your approval and a fixed price, it does NOT provide first-day coverage for natural causes of death. There is always a two- or three-year waiting period. If you die of an illness during the first two years, your beneficiary will only receive a return of the premium paid plus interest.

For example, you buy a $25,000 face amount with no questions asked life insurance. You pay $108.85 for your coverage. After six months, you have a heart attack and die. Your beneficiaries will only receive $718.41 instead of the full death benefit of $25,000, which will not be enough to pay for the funeral and other expenses.

You should only settle for no-questions-asked life insurance if you have a severe medical condition or have no other option for life insurance coverage.

Low-Cost Term Insurance For Seniors

While there are scams involving final expense life insurance, there are also legitimate services that provide senior final expense life insurance. Term life insurance is a great option for seniors if you have an idea of how long you may desire coverage for, as you can choose the specific length of your plan. Typically, term life insurance plans can be 10, 20, or 30 years long.

The older you are, the less variety there may be in term lengths and the fees will likely rise as you age. However, term life insurance is still a popular choice for those looking for a policy that can still provide benefits for their loved ones.

• Check to see if the life insurance company actually exists by verifying the company's contact information through the National Association of Insurance Commissioners.
• Know what life insurance policy you are paying for by researching the different types of life insurance policies to know what suits you best.
• Never pay premiums in cash, always pay by check or money order and get a receipt or written invoice.
• Make sure the company receives your payments by periodically confirming with the company that they are receiving your premium payments.
• Be suspicious of unsolicited emails or calls about life insurance payouts or other financial transactions.
• Never provide your personal information or banking details over the phone to an unknown caller.

If you think you’ve been the victim of a life insurance scam, report it to the authorities and contact your insurance company to let them know what happened.

Overpriced Final Expense Coverage

Final expense insurance is a type of whole life insurance that covers medical bills and funeral expenses when you die. It is also known as burial or funeral insurance and is a popular choice among seniors.

Final expense insurance is a straightforward option designed to help cover end-of-life costs, such as funeral expenses, medical bills, and outstanding debts. It is typically available to people aged 50 to 80 and does not require a medical exam, making it accessible to those who might have difficulty qualifying for traditional life insurance.

While final expense insurance offers a simple solution for covering end-of-life costs, it is important to understand its details and limitations. The death benefit is usually between $2,000 and $35,000, while the average cost of a funeral ranges from $7,000 to $12,000. This means that the policy may not be enough to cover all expenses.

Additionally, final expense insurance policies are often more expensive than other types of policies due to the simplified approval process. The premiums are usually under $100 a month for a $5,000 to $20,000 policy, but this can vary depending on age, sex, health, coverage amount, and the life insurance company chosen.

It is also important to note that final expense insurance policies may be overpriced. Some insurance agents will attempt to sell a more expensive plan or add extra riders or provisions that are not needed in order to get higher commissions. It is important to read all the details in the insurance policy, ask questions about anything you don't understand, and seek a second opinion if you feel pressured to buy a more expensive policy.

Accidental Death Scam

Accidental death insurance is a type of life insurance that only pays out in the event of an accident. It will not pay a death benefit for natural causes such as heart attack, stroke, or dying in your sleep. The accidental death scam can be done in two ways:

Presenting accidental death-only insurance as regular life insurance: An agent or company offers you an accidental death policy but makes you believe it covers you for natural causes of death. This scam works so well because accident-only coverage is incredibly cheap, and people are very drawn to the low price (and most people don’t think to ask questions about why it’s so cheap).

Bundling an accidental death rider with natural coverage to artificially inflate the total coverage: First, an accidental death rider is an add-on to a policy that would double the death benefit if death is from an accident. It’s very low cost, typically only a few dollars extra per month. The rider is null and void if you don’t die from an accident. This scam is generally executed by agents who sell overpriced companies. They will present you with a policy that covers half natural causes of death and half accidental death. However, you think the whole thing covers you for natural causes of death. They do this to greatly reduce the price. The unsuspecting customer thinks they’re getting a great bargain. Here’s an example to illustrate how this works. Let’s say the lying agent would charge a woman $150 monthly for $20,000 in natural death coverage. Alternatively, that agent knows that most other final expense companies would charge about $100 for the same thing. So the unscrupulous agent will then sell her a $10,000 natural death policy with a $10,000 accidental death rider, bringing the price down to about $80 monthly. They present the customer with this lower price, and they don’t even know that a natural death would only yield a $10,000 payout—not $20,000.

Rate Classification Scam

Rate classification is a method used by life insurance companies to determine your risk class and premium. While life insurers may refer to these life insurance rate classifications differently, there are some basic tiers that are generally used industry-wide. These include:

• Preferred select (or preferred plus, super select, super preferred, super elite, select preferred)
• Preferred
• Standard

The preferred select classification is associated with individuals who fit the insurer's criteria for excellent health. Depending on the insurer, it may be applicable if you have a normal weight and height profile, don't smoke, don't engage in risky sports or hobbies, don't have a history of driving under the influence or moving violations, don't work in a high-risk occupation, and don't have a negative family health history. Premiums are generally the lowest for this classification.

The preferred classification is just a notch below the preferred select rating. It generally means there might be a few minor health issues that kept you out of the preferred select rating, such as a slight difference in your height-to-weight ratio or moderately elevated cholesterol level. You'll likely still pay a relatively good rate in this classification.

The standard classification is for individuals with average health as well as a normal life expectancy. While you may have only minor health issues, there may be other factors that, when combined, place you in this category. Some life insurance companies may have a classification before standard, such as preferred standard, meaning that you fall somewhere between preferred and standard.

It's important to note that life insurance companies use rate classification as a tool to determine premiums and risk. However, it's also important to be aware of scams that may target individuals, especially seniors, through misleading offers and requests for personal information. Always research insurance companies and agents before providing any personal or financial information, and be cautious of offers that seem too good to be true.

Frequently asked questions