What Is Final Expense Insurance?
Final expense insurance is a type of whole life insurance policy that offers a small death benefit and is relatively easy to get approved. It is also known as funeral insurance, burial insurance, simplified issue whole life insurance, or modified whole life insurance, and all of these terms refer to small whole-life policies with a face value (and death benefit) ranging from $2,000 to $35,000.
While final expense insurance and life insurance are similar in many ways, the former is typically marketed to those who are older and are starting to think about their funeral costs. Insurers sell smaller final expense insurance policies to make them more affordable. A financial planner and insurance fraud expert note that there is no fundamental difference between final expense insurance and life insurance, except that final expense insurance policies have smaller death benefits.
The death benefit of final expense insurance is designed to cover expenses such as a funeral or memorial service, embalming, a casket, or cremation. However, beneficiaries can use the death benefit for any purpose, from paying property taxes to taking a vacation.
An Insurance expert notes that some people may already own existing life insurance policies that can go towards paying final expenses, so they may not need a new policy. Additionally, if someone has already prepaid their funeral expenses, final expense insurance may be redundant. Nonetheless, final expense insurance can be a good option for those who want to ensure that their loved ones are not burdened with the costs of their funeral and other end-of-life expenses.
Key Takeaways:
- Final expense insurance is a type of whole life insurance policy designed to cover funeral expenses and other end-of-life costs.
- It is relatively easy to qualify for final expense insurance, and the death benefit can be used for any purpose.
- The beneficiaries of a final expense insurance policy can use the policy’s payout to pay for funeral service, casket or cremation, medical bills, nursing home bills, an obituary, flowers, and more.
- Typically, the death benefit ranges between $2,000 and $35,000, but it can be customized to meet individual needs.
- The average funeral cost can range between $7,000 and $12,000, depending on the location and the services provided.
Understanding Final Expense Insurance
Final expense insurance is a type of whole-life insurance that provides lifetime coverage. The premiums for your policy will never increase, and the death benefit will never decrease. This is different from term life insurance, which expires when you reach a certain age.
A whole life policy also accumulates cash value that you can borrow against during your lifetime. However, any outstanding loans at the time of your death will reduce the money your beneficiaries receive.
When you apply for final expense insurance, you won’t have to undergo a medical exam or allow the insurance company to access your medical records. However, you will need to answer some health questions. Depending on your answers, you may not qualify for coverage that begins on day one.
As with any life insurance, the premiums for final expense insurance depend on your age, gender, and health. The older and less healthy you are, the higher your rates will be. Men tend to pay higher rates than women due to their shorter average life expectancy. And you may qualify for a lower rate if you don’t use tobacco.
Most insurance companies offer final expense policies to people from birth to age 85. However, there may be a minimum age (such as 45) and maximum age (such as 85) at which you can apply, depending on the policy and insurer. The maximum death benefit you can select may also be smaller if you’re older.
Some policies may offer death benefits of up to $50,000 if you’re younger than 55 but only up to $25,000 if you’re 76 or older. However, some insurers may offer the same maximum death benefit to all applicants, regardless of age.
>>> Read:Exploring the Benefits of Guaranty Income Life Insurance Company
How Final Expense Insurance Works
Let’s say that you have retired and no longer have life insurance through your employer, and you don’t have an individual life insurance policy. You also don’t have a nest egg that is large enough to provide a financial cushion for your spouse and/or children when you pass away.
Now, you’re considering getting a new life insurance policy, so contact a life insurance agent and start the application process. During the process, you answer a few basic questions about your health. While the death benefit is what you’re looking for, you find that the premiums are too expensive because of your age and health.
Unfortunately, the insurance company doesn’t offer policies with a death benefit that is small enough to make the insurance premiums affordable for you. At this point, you might feel discouraged and assume you can’t afford life insurance.
However, final expense life insurance is designed to solve this problem. According to Anthony Martin, the CEO of Choice Mutual, a final expense life insurance brokerage company, the insurance companies created these policies to absorb the risk of serious medical issues. This means most seniors can still secure a policy, even with poor health.
Smaller Death Benefits
Final expense insurance is a type of policy that offers a smaller death benefit, making the premiums more affordable, as noted by insurance experts. What sets this policy apart is that it is permanent, meaning that regardless of when you pass away, your heirs will receive the death benefit you chose, provided you have paid the premiums.
While final expense insurance may not be able to cover all of your expenses, it can help your loved ones cover some of the most significant bills directly. This can be particularly beneficial for costs they may otherwise find challenging to manage.
The policy can provide financial assistance for various costs, such as those associated with a funeral service, a memorial service, embalming, a casket, cremation, placing an obituary in various publications, and flowers.
Benefits of Final Expense Insurance
- Having final expense insurance can provide relief to your family members as it gives them the necessary funds to take care of any expenses associated with your death.
- This option can be precious to individuals who cannot obtain any other type of insurance due to their age or health yet still want to help their loved ones ease the financial burden.
- It is affordable due to the lower coverage amount and builds a cash value over time, which can be borrowed from or used as collateral during the policyholder’s lifetime.
- Additionally, the premium amount remains the same, making it easier to plan ahead.
- The policy guarantees coverage and cannot be canceled, even if your health deteriorates.
- The death benefit, intended to cover final expenses, can be used for anything the beneficiary deems appropriate—a legacy nest egg, mortgage payments, credit card debt, and more.
Special Considerations
Final Expense Insurance – Guaranteed Issue Policy
There are two types of final expense policies. One of them is the guaranteed issue policy. These policies are for people with serious health issues who wouldn’t qualify for a policy that requires medical questions, an exam, or medical records. Guaranteed-issue policies always have a waiting period of two to three years before benefits are paid.
If the insured person dies during the waiting period, the beneficiaries will not receive the death benefit. However, they will get a return of the premiums the policyholder paid, along with the interest. The interest is usually at an annual rate of 10%. To learn more about guaranteed issue policies, including how life insurance companies can offer them, you can read our article on guaranteed issue life insurance.
Final Expense Insurance -Graded Benefit
There is another type of final expense insurance, known as a graded benefit policy with a partial waiting period. If the insured dies during the first year of the policy, then the policy would pay out between 30% and 40% of the given death benefit.
However, if they pass away during the second year of the policy, then the payment could go up to 70%-80%. If the insured dies after the second year, the full death benefit will be paid.
For those who experience semi-serious health issues, such as having been in cancer remission in the past 24 months, congestive heart failure, or a history of drug/alcohol treatment in the last 24 months, they may qualify for a graded benefit policy instead of a guaranteed issue policy.
Whereas, individuals with severe conditions that include being currently treated for cancer or having undergone heart surgery within the last 12 months would not qualify for anything apart from a guaranteed issue policy, in which case, coverage would begin only after two years.
It is advised that you compare multiple insurers to find the best option that sees your health favorably. Taking out a policy that involves answering health questions is the best way to secure the lowest rates. Individuals with less-than-ideal answers to the health questionnaire may still be offered a policy but for a higher premium rate or a graded benefit policy/guaranteed issue policy with a waiting period.
Do You Need Final Expense Insurance?
If you have considerable savings, investments, and a regular life insurance policy, then it is likely that you do not require final expense insurance. However, considering the increasing costs of funeral and related expenses, you may want to opt for final expense insurance to ensure that your family has the financial means to pay for the bills associated with your passing.
Suppose you cannot afford to purchase regular insurance, which could alleviate the financial burden your death may place on others. In that case, final expense insurance might be an option worth considering. It’s important to note that even if your estate has enough money, a final settlement sometimes can take months, which means that the money might not be available in time, leaving loved ones in a financial bind.
Although Social Security offers a death benefit, it’s only $255 (if you are eligible for it). Final expense insurance could provide your beneficiary with quick access to thousands of dollars that they might need during a difficult time.
Costs Related to Final Expenses
People may encounter a few costs following the death of a loved one, such as:
- Funeral home service fee ($2,300)
- Transporting the departed to the funeral home ($350)
- Embalming ($775)
- Preparations for makeup and hair styling ($275)
- Facilities and staff for a viewing ($450)
- Facilities and staff for a funeral ($515)
- And a hearse ($350).
Pros and Cons of Final Expense Insurance
The table below outlines the advantages and disadvantages of final expense insurance.
Pros:
– Affordable policies.
– Easy qualification process that only requires answers to medical questions without needing a medical exam.
– Premiums are fixed and will never increase.
– Death benefit cannot be decreased unless you borrow against cash value or request accelerated death benefits during your lifetime.
– Heirs can use the death benefit for any purpose.
– The death benefit is guaranteed as long as premiums are paid, and you don’t have a term policy.
– The death benefit is not taxable.
– You can purchase a policy with a death benefit of up to $35,000.
– The policies are available to applicants with poor health.
Cons:
– Policy face amounts for term life insurance are usually lower than other types of insurance and may not cover all expenses.
– Premiums for term life insurance can be more expensive than other policies due to the ease of health qualification.
– Some insurers can provide incomplete or misleading information, making it difficult to make informed decisions.
– Some term life insurance policies have waiting periods, which insurers may not clearly disclose.
– If you outlive the policy, the total premiums could exceed the death benefit.
It’s important to understand that term life insurance for seniors is not the same as final expense insurance, a type of permanent insurance. A term life insurance policy that expires before you pass away may not cover your final expenses or any other financial needs of your beneficiaries. It’s essential to comprehend the difference between these two types of policies before deciding.
Example of Final Expense Insurance
Using Choice Mutual’s online quote tool, we discovered that a 68-year-old man in California can expect to pay anywhere from $156 to $180 monthly for a $25,000 final expense insurance policy with immediate coverage and health questions. However, if the man has congestive heart failure and only qualifies for a guaranteed issue policy with a two-year waiting period, he might have to pay anywhere from $234 to $345 per month. Let’s say he opts for the most expensive policy with a $345 monthly premium. After two years, he would have spent $8,280 in premiums. If he dies between the first day of year three (when the waiting period ends) and the end of year six, his beneficiaries will be better off since the premiums paid will be about equal to the death benefit.
It’s not recommended for healthy people to buy guaranteed-issue policies because they will pay a higher price, and the coverage will not begin on day one. Insurance experts suggest that healthy 68-year-old males in California should opt for a $25,000 guaranteed universal life policy that costs around $88 per month. However, this policy will only expire at age 100, providing less coverage than a whole-life policy. It’s essential to consider your own health and budget when deciding if this policy is right for you.
A guaranteed universal life policy, like whole life, does not expire as long as you buy a policy that covers the rest of your life. You can buy a policy that will cover you up to age 121 for maximum protection, up to age 100, or up to a younger age if you have specific requirements.
To cut costs and no longer require coverage after you reach 90 years old, consider purchasing an insurance policy that does not have a cash value element, which is cheaper than final expense insurance.
When it is beneficial to use Regular Life Insurance:
Buying regular life insurance instead of final expense insurance is more beneficial if you can afford to purchase a larger policy that meets the minimum death benefits set by the insurance company.
This is according to an insurance expert. Many insurance carriers require a minimum face value of $50,000 to $100,000 for traditional whole-life or term insurance.
Although the cost per $1,000 of coverage is lower for these policies, higher face amounts lead to higher premiums that some people may not be able to afford. Some clients who are eligible for traditional whole or term insurance opt for final expense insurance because they only require coverage of $20,000 or $30,000.
Claims on final expense policies are usually paid faster than those on larger policies. Additionally, many life insurance companies have increased their minimum death benefits to $50,000 to make it not worth the time and effort to process applications and conduct underwriting for smaller policies.
However, some companies specialize in final expense insurance and have developed a system and underwriting process to sell smaller policies and make smaller profits but with more volume.
Frequently Asked Questions
What are the possible uses of a Final Expense Death Benefit?
The death benefit from a final expense policy can be used for whatever the beneficiary wishes, such as to cover funeral costs, flowers, medical bills, or nursing home costs. Alternatively, the beneficiary may choose to use the money for other needs, such as paying down credit card debt or putting it away for savings.
What is the cost of Final Expense Insurance?
That depends on a person’s gender, age, health, the coverage amount sought, and the state where they live. Most websites offering it have calculators that give you an idea of the cost. For illustrative purposes, a 65-year-old woman seeking a $10,000 face amount and no waiting period may pay about $41 per month. For a guaranteed acceptance policy, they’d pay $51. A 65-year-old male seeking a $10,000 face amount and no waiting period may pay about $54 per month and $66 for guaranteed acceptance.
Do I Need Final Expense Insurance?
You might not need it if you have the financial means to cover the expenses that must be taken care of after you die. But many folks don’t realize how pricey funerals can be or that hospitals might charge them big, unexpected fees. If you don’t have enough money to pay for these things or any insurance to assist, getting final expense insurance could be a great help for your loved ones.
Bottom Line
Final expense insurance can provide a meaningful payout to your loved ones after your death, which can help pay for traditional services such as a funeral or memorial service. Qualifying for financial expense insurance is easy and affordable, with coverage amounts ranging from $2,000 to $35,000. Although it may not be a large sum, the benefit can be a godsend for family members who may not have the financial means to cover the expenses associated with your passing. Additionally, if they already have the necessary funds to meet these obligations, the benefit can be used in any other way that the beneficiary chooses.
