Policy Replacements, Bad Idea!

I believe that there should be much stricter regulations when it comes to replacing one policy for another. Final expense life insurance is primarily marketed toward senior citizens. Seniors are often on a fixed income and can be vulnerable when it comes to being offered savings by an (either inexperienced or careless) agent who convinces them that all they're offering is a lower rate for the same exact plan. It is all too common for someone who is already paying for a final expense plan to receive materials in the mail that lead them to believe that there is some type of special offer or benefit that sounds like it's free, or that it might be a better deal than what they already have. In some cases it says in bold letters attention Ohio residents only (or whatever state the individual resides in), you may qualify for a state-regulated benefit up to 35,000 to pay for your final expenses, send in this reply card in the next 3 days in order to receive your free kit (or something to that extent).  At the bottom, it clearly states in very small print that it is not endorsed by any government agency. Some of them even state that you may be contacted by an insurance professional. To the Agent, this is called a lead. To the consumer, this is normally called junk mail. Most seniors see at least one every week, and it usually takes an event such as losing a loved one or having recently experienced a funeral to turn what is usually regarded as junk mail, into a request for more information. That is when someone will send it in to "see what it's all about". Then a few weeks later they've got an agent knocking at their door. If not directly through the mail, an in-person visit is the most common way for someone to eventually purchase a final expense life insurance policy. The problem is that people continue to get these cards in the mail, and after so much time they'll end up sending another one in. They are often worded differently and most of the time someone who already has coverage does not remember that this was exactly how they ended up with their existing policy, nor do they realize that it is going to result in another insurance agent showing up to their home, more often unannounced. When a final expense agent receives these cards it's time to go to work. a lot of these cards do not have phone number present, but even when they do, calling is usually the fallback plan. It's much easier for someone to decline interest over the phone than at the door. Especially when they see the card they filled out in the agent's hand. More often than not the individual will invite the agent in and listen to what they have to say. It's important to understand that the agent has paid an average of $50 for each of these cards and so the only way that the agent gets a return on their investment is to sell a policy. When the individual already has an insurance policy, one might think that there's not much that can be done without getting the person to spend more money on something they already have, and there's definitely nothing wrong with having more than one, it's just expensive that's all. This is exactly why an agent will attempt to replace the policy in order to use the money that is already being spent. Independent agents otherwise known as brokers typically have multiple companies in to offer. They usually differ in rates and health questions when it comes to qualifying. It is very common for an agent to have a lower rate than what the client is already paying. Out of all the different companies, it's unlikely that they already have the lowest rate they can find. Some of these plans offer identical benefits. There's the amount you pay, and the amount that the policy pays at death. It seems simple enough on the surface, so now they are being presented with what the agent tells them is an "Apples to Apples" comparison. If the agent can show that person a $10 per month savings and go on to explain that it will save them $120 a year for something they have to pay for the rest of their lives, you can imagine why it's not difficult for someone on a fixed income to take advantage of such savings. This happens all the time, and it is safe to assume that they don't mention anything about the contestability period, otherwise, it's unlikely that someone later in age would take such a risk. Receiving a replacement notice is common in the final expense industry. The agent who is replacing a policy submits a replacement form along with the application to the company, and that company has up to 30 days to provide a copy of the replacement form to the company being replaced. This is to give the current provider an opportunity to conserve the business. For the 13 years, I spent as an independent broker, it wasn't until a policy had been canceled or lapsed that a replacement notice would be received. In most cases, the new coverage is in force, and the old policy is history by the time the original writing agent becomes aware that their policy was replaced. This alone can make it incredibly difficult to conserve the business. An agent who has spent less than 2 years selling final expense policies does not have the experience to understand that most claims do not pay in full while a policy is contestable. I would advise anyone to contact the company they are looking to switch to and find out what percent of claims get paid while a policy is contestable. $10 is $10 but when $10,000 is on the line to protect one's family from having to take out a loan or borrow money in order to pay for a funeral, I would rather know that the company I carry my final expense plan with has no choice but to pay my claim. That guarantee only comes once a policy is passed in the first two years. There are plenty of other ways to save money, but exchanging one whole life insurance policy for another is not a risk that even I would be willing to take at 40 years old, much less at 65 or 70. When people get into the habit of doing this once, they will likely take advantage of such an opportunity any chance it presents itself. As one can imagine since these cards continue to come in the mail for the rest of one's life, that opportunity will present itself over and over again. My advice to anyone who carries a whole life final expense policy is to get one and keep it and don't let an agent's desire to get paid a commission interfere with your family's ability to pay for your final wishes. It never ends well. In theory, even if a policy pays the claim in full within a contestability period, the company has up to 6 months to pay the claim, and it will be up to the insured's family to provide all the medical documentation that will be requested by the insurance company. That's not exactly what grieving loved ones want to do with their time when they are trying to handle a funeral. Driving around from one doctor's office to another to collect stacks of paper to haul to the post office, pay for the postage, then wait months for the company to make a decision. Refer to my post about the contestability period for an in-depth analysis (if that's not what sent you here). I believe it's the most important piece of information to be understood by anyone who carries a whole life final expense plan.

Ohio Final Expenses