The Complete Final Expense Insurance Contract Checklist: What You Need To Know

Final expense insurance is a type of life insurance that aims to cover your final expenses. It has a smaller death benefit than the traditional life insurance policy and is easier to get approved for. The final expense insurance can also be called “burial insurance”, “funeral insurance”, “modified whole life insurance”, or “simplified issue whole life insurance”. The general purpose of this type of insurance is to settle off final expenses accrued by the deceased, including medical bills, card debts, and burial or funeral expenses. In this article, you can expect to find all you need to know about insurance contracts. You’ll also learn;

• Some terms associated with a life insurance contract
• Certain clauses to watch out for before signing the policy contract
• Payment of premiums and what happens if payments are delayed
• Things that may affect your policy claim, and more!

Table Of Content:

↴Funeral Insurance Policy Contract Grace Period Premiums Policy Schedule Incontestability Clause Parties in a Contract Autopsy Suicide Age of Gender	↴Settlement Options Payment Options Payment of Claims Waiver of Premiums
↴Change of Plan For Funeral Insurance Policies	↴Contract Terms Policy Leverage Costs, Insurability, and Underwriting Death Benefits
↴Reinstatement of Insurance Policy	↴Insurance Vs Assurance What Does Standard Insurance Contract Provision Mean? Exclusions
↴Reserves	↴Conclusion
↴Loan Provisions Non-Forfeiture Provisions Basis of Non-forfeiture Values	↴FAQs

Funeral Insurance Policy Contract

An insurance contract is a formal agreement between an insurance company (the insurer) and a contracting party (policyholder) to pay money, or by agreement, make provision in kind to the policyholder, or third-party (agreed beneficiary) on the occurrence of the agreed incident (Death, accident or specific time frame) in return for a premium. The insurance contract is very important. It not only lets you know what to expect in your coverage but protects you too. Imagine not having any written agreement that is binding to you and the insurance company, what would be used as a reference in case something comes up in the future? The thing is, the thought of a contract might seem daunting because many people have no idea what to expect, and most fear the legal jargons that are often found in contracts like these. Well, not to worry, I have compiled a checklist that you should watch out for before signing a binding contract for your final expense insurance.

Grace Period

Life can get busy and for one reason or the other, one might forget to pay our bills, especially if payments aren’t automated on your bank account. When this happens, you are given a short period of grace to pay before your coverage is canceled. So, in simple terms. The grace period is the time given after a missed payment before cancellation. Most states in the United States have made it compulsory for insurance agencies to include grace periods in their policy contracts. This is to give people the time to make up payments for overdue premiums. For most policies, where the premiums are paid monthly, the grace period is usually 30 days or more, but bear in mind that if you are given a grace period for overdue payment and it falls in the time frame of the next payment, you will have to make up for both, or else your coverage will be canceled. So, if your contract does not include a grace period, do inform your insurance agent and have the contract revised except it might not be mandatory in your state of residence, at which point you could negotiate to have one included.

Premiums

What activates your coverage is your first monthly payment of your premium. If you are not paying for your insurance policy in full, your payment will be broken down into monthly payments which will depend on your age, gender, health and amount of your coverage.  Final expense premiums tend to be more expensive than traditional life insurance because of the risk taken by the insurance company and its permantentability. On average, premiums cost $30-$70 monthly, depending on the sex, health status, age, amount of coverage, and insurance company chosen by the insured. Return of Premium (ROP): What Is It? Return of premium (ROP) refers to the premiums paid or reimbursed to the insured if they survive the policy’s term or the period stated in the contract. For example, a $500,000 policy, purchased at $5000 per year for 30 years will result in $150, 000 being returned to the surviving insurance holder at the end of the 30 years. These types of plans normally apply to term insurance policies. The policy coverage normally ends when premiums are returned to the insured/policy owner. What is a typical scenario where one would need a ROP policy?  The first and most important benefit of a return of premium rider is the refund of all premiums paid over a period of time to the insured or policy owner. While most people buy insurance with the hopes that they never need it, it is one feature that can come through for you when you need it most. If you only need insurance coverage, say 20 years, which is the time you have your children living under your roof and depend on your financial support. You can add this rider to your life insurance policy to cover you for only that length of time, and in the end, get a full refund for the entire premiums. The caveat is that you would be paying a 30% mark-up for this added benefit, which will also be refunded. You can think of it as a 20-30 year savings plan with no interest.

Policy Schedule

The policy schedule is also called the “schedule of insurance”, and is the complete breakdown of your insurance policy. Imagine it as a descriptive outline of everything contained in your coverage. The policy schedule is usually detailed within the first few pages of the insurance contract and should identify you, the policyholder, your beneficiaries, amount of coverage, mode of payment, deductibles, exclusions (if there are any), and payment schedule (premiums). Bear in mind that the policy schedule is not a standalone contract or document, but part of a whole. It may also contain warranties, additional clauses, and other conditions that may be unique to your policy. When you are shown the insurance contract, make sure you read through thoroughly, and check for the following;

• The total amount of your coverage and its time limit.
• The insured’s personal information, in this case, the correct spelling of their name, DOB, Social security number, address, telephone and others.
• Beneficiaries correct name, relationship, contact info, percentage of the amount given to them, make sure its total adds up to 100%)
• Double check your medical answers and be sure you get very technical with your responses. If the question asks; in the last 24 months have you been diagnosed with ….? And you were diagnosed 25 months ago the answer is NO

Terms and conditions are attached to your policy, such as warranties and exclusions. If at any point, you are confused or unsure of the terms used in the policy schedule or they way you should answer a question, we have several insurance professionals, here at the Senior Care Plan that will gladly break it down into simpler terms for you and ensure that you get the policy and coverage that you need, and guarantee that you do not have issues when making your claim.

Incontestability Clause

The incontestability clause in the insurance contract is strong protection included in the contract to protect the insured. What it basically does is stop the insurer from canceling or claiming that the policy is void after a certain period of time, usually two or three years, as long as the policy has been active throughout that time. You might be wondering, why would they do that? Well, it is a  known fact that the insurance company takes a huge risk when insuring individuals within a specific age range, gender, or people with certain lifestyles. So, when information has been misrepresented during the registration process and is later discovered, the insurer might want to cancel the coverage. How does incontestability protect you at this point? If you gave honest information about your lifestyle at the time of registration and developed a high-risk lifestyle a few years later, the incontestability protects you, ONLY when the stipulated period of incontestability has passed. Bear in mind that the clause is only used for the first two years from the policy issue date. Therefore, if your lifestyle changes after the policy has been activated, you wouldn’t be held accountable because the change happened AFTER the issue date.

Parties in an Insurance Contract

There are six important parties in an insurance contract. The policy owner, the insured(s), the insurer (insurance company), the payor, the primary beneficiary(ies), and the contingent beneficiary(ies).

• The policy owner is the person who owns the right to the policy. This could also be the policyholder or/and the insured.
• The insured is the person, whose life, health, is made the subject of the life insurance policy. The insured doesn’t necessarily have to be the policyholder because an insurance policy can be acquired on behalf of someone else, maybe a family or a business partner. It normally is someone that has an insurable interest.
• While the insurer is the insurance company that agrees to pay out the specific amount applied for in cash (see settlement options for more details).
• The payor is responsible for paying monthly premiums to keep the policy active, so more often than not, the insured is the policy payor and owner.
• The primary beneficiary refers to the person or persons who upon agreement are to benefit from the total payout of the insured’s policy, upon their death as is stated in the final expense insurance contract. The insured can also be a third-party (beneficiary) if he or she outlives the policy, at which point the total premiums are paid to him or her.
• The contingent beneficiary is considered as a backup plan in case something happens to the primary beneficiary. The contingent beneficiary is also listed in case the primary beneficiary refuses or is unable to receive the payout from the policy (normally due to death)

The first two parties in a contract are clearly defined, that is the insurer and the insured, but the policy is incomplete without the insurer clearly stating who the beneficiary or beneficiaries are.

Autopsy

Autopsies aren’t mandatory for the insurance policy claim, but in cases where causes of death are considered suspicious, it may delay payment and may be required before the insurance benefit is released. A carrier could request the beneficiary to present an autopsy report with the insurance claim form. This is because the insurer wants to know if the cause of death is in the exclusion, and an autopsy report will prevent a delay in benefit payment. For example, if someone purchases a final expense insurance policy and later is diagnosed with cancer, the insurer is less like to demand an autopsy report when they lose the battle with this dreadful illness, but in cases where the insured passes away from the abuse of an illegal substance, or in the course of a crime, the claim is likely to be denied. Types of Deaths That May Affect Your Claim

• Death due to abuse of illegal substances
• Death by hazardous activities or lifestyle within the first two years
• Death within the first two years by illnesses that were unmentioned in the registration form
• Death by suicide within the first two years (depends on the insurance company)
• Death claim may be contested if it happens within the first two years after the policy was enforced

The Suicide Provision This is a clause in the contract that was put with the sole intent of protecting the insured. The suicide clause gives a two-year mandatory period in which the death benefit will not be paid to the beneficiary if the insured dies by suicide. Only the premiums paid for the duration of the policy will be paid out. This clause prevents people from purchasing any life insurance policy with the sole purpose of committing suicide afterward.

Age of Gender

Age is another important factor to be considered for final expense insurance coverage. The final expense market was created to give seniors a more affordable insurance plan, but the older one gets, the higher the risk to the insurer, and therefore the more expensive the premiums become. Gender also is a huge factor because men pay larger premiums than women. This is because it is scientifically proven that women live at least five years longer than men.

Change of Plan for Funeral Insurance Policies

If  you have signed up for a final expense insurance policy, here is what you need to consider;

• Can the services or products attached to your policy be changed?

Changing your policy plan will only be possible if this is something your insurance company accepts. Although, certain conditions may apply, and this may be dependent on the current policy rate, evidence of insurance given that payment of premiums is up to date. Note that the value of your payout will be accordingly affected.

• Is your policy flexible?

Certain life insurance policies are flexible and are often called “adjustable life insurance”. As the name implies, you can increase or decrease the amount of premium you pay monthly, throughout the policy. This will affect the total value of the policy, and it can be increased by increasing the total amount paid in premiums monthly and reduce it accordingly.

• What happens if you relocate and you want the funeral arrangements done in another city?

Travelling to another state doesnt affectyour claim. All you need to do is ensure that your insurance agent is licensed in the state you buy the policy in, and the signatory is dne there. Once that is done, you can mske your claim anywhere in the world.

Reinstatement Of Insurance Policy

Reinstatement of insurance policy refers to the reactivation of a previously terminated insurance policy, oftentimes due to late or lack of payments. Although, there are specific conditions that may be laid out by the insurance company before the insurance policy can be reinstated. For most insurance companies, you’ll be required to provide the following before you can get reinstated;

• Evidence of insurability
• Payment of owed premiums
• Possible interest
• Written application with a credible reason for delayed payments
• Payback all debts or loans to the policy with interest

Reserves

Reserves refer to the total amount an insurance company is mandated to keep aside under state law so that they have enough to pay off legitimate insurance claims. The standard rates range from 8-12 percent of the insurance company’s total revenue. This in no way implies that the insurance agency does not have the funds to pay out claims, but ensures that they do so on time and without delays. Note that each state has a minimum amount to be reserved, but the insurance company is allowed to set theirs above that mark following a principle-based method. This doesn’t affect you, the insurer, in any way. If anything, it is for your benefit, as this state law makes sure that the insurance company isn’t tempted to invest a large part of the premiums they receive from policyholders in a bid to make large profits, which could potentially render them unable to meet up with future payouts.

Loan Provisions

If you find yourself in a tight spot and urgent need of funds, you’ll be happy to know that your insurance policy can be borrowed against, without the hassle of checking your credit score, and without standing the risk of being denied if you are unable to provide valuable collateral, because the cash value of your insurance policy will serve as the collateral. So, what’s the catch? Like any loan, you’ll be required to pay back with interest. Older policies tend to have smaller interest rates while newer policies have 10-15 percent interest rates. Some states, such as Florida restrict insurance companies from charging higher than 10% annually on insurance loans. Whatever interest accrued in the loan is paid into the policy and not the insurance company. So, do not think this is a method for the company to make money off your insurance policy. Also, note that the loan is proportionate to the cash value of the policy. Take for example, if you pay 50 dollars every month for premiums, once the sum is accumulated, about 70 per cent goes into the cost of insurance, while the rest goes into the policy and a cash value that goes inside the policy. It would take about 2-3 years for you to see a reasonable sum in your balance. You also have a 10 year surrender period, in which you could take money out of the policy without a penalty.

Non-Forfeiture Provisions

The non-forfeiture provision is a clause that protects the insured’s interest after a short lapse in payment. It allows you to receive your benefit in part or full, or a partial refund of the premiums you have paid after a lapse in payment.  The clause may stipulate that you return a part of the premiums you have paid to make up for the owed payments, or that your total payout or benefit you receive be reduced as a result of the incomplete payment of your premiums. There are three main types of non-forfeiture options and they are;

• Reduced Paid-up Insurance– The reduced paid-up simply means the policyholder is opting to change the total premiums paid into a single premium, thereby canceling future payments of monthly premiums in return for reduced coverage. You will be getting a lower benefit for this new policy, and this will also be determined by your age and sex at the time of subscription to this new plan. The reduced paid up-insurance can be borrowed against at any time like any regular life insurance policy and can be surrendered at any time by the insured for its total cash value.
• Cash Surrender– The cash surrender option is put into place when you, the insured, voluntarily opt to cancel your insurance policy before it matures, or in the case of the final expense insurance, before the death of the insured occurs. In this case, you will receive a cash surrender value (which will be lesser than the total amount you would have received at the maturation of your policy). Bear in mind that you will have to pay a surrender charge, which will be deducted from your payout value as a fixed sum or percentage of the whole.
• Extended Term Insurance-This non-forfeiture option is for those who can no longer afford to pay monthly premiums but do not want to lose the whole death benefit. So, in this case, all the premiums you have paid up will be calculated and be used to maintain the death benefit for a specific period of time. What this does is calculate the total premiums paid by the insured over a period of time. The total vcalue is then used to purchse a term life insurance equal to its value.

Basis of  Non-forfeiture Values

• Voluntary termination of the life insurance policy
• Inability to pay up premiums after the grace period
• Default option chosen by the insured as a result of unpaid premiums