Final Expense Insurance: What it is, Who Needs it, Pros & Cons

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Final expense insurance, also known as burial insurance or funeral insurance, is a type of life insurance policy that is designed to cover the costs associated with a person’s final expenses. Final expenses can include funeral and burial costs, medical expenses, legal fees, and other outstanding debts. Final expense insurance policies are typically smaller than traditional life insurance policies, with coverage amounts ranging from $5,000 to $25,000.

Unlike traditional life insurance policies, final expense insurance policies are usually easier to qualify for and have lower premiums. This makes them an attractive option for individuals who are unable to obtain traditional life insurance due to age or health concerns. Final expense insurance policies may also be purchased by those who already have traditional life insurance policies but want additional coverage to ensure that their final expenses are fully covered.

Having final expense insurance is important because it provides financial protection to your loved ones in the event of your death. The death of a loved one can be an emotionally and financially challenging time for family members, and final expense insurance can help alleviate some of the financial burden. With final expense insurance, your family members will have the funds necessary to cover your final expenses, allowing them to grieve and cope with their loss without having to worry about the financial implications.

Final expense insurance can also provide peace of mind for individuals who may be concerned about leaving their loved ones with unpaid debts or expenses. By having a final expense insurance policy, you can ensure that your family members will not have to shoulder the financial burden of your final expenses on their own. Instead, they can focus on celebrating your life and cherishing your memory without worrying about the costs associated with your final arrangements.

Who Needs Final Expense Insurance?

Final expense insurance is a type of insurance that covers the costs associated with a person’s final arrangements, such as funeral expenses, medical bills, and other end-of-life costs. While final expense insurance is not necessary for everyone, there are certain groups of individuals who may benefit from this type of coverage.

Individuals who may benefit from final expense insurance include those who are not able to save money to cover their final expenses, those who do not have a life insurance policy that covers their final expenses, and those who do not want to burden their loved ones with the financial responsibility of paying for their final arrangements.

Final expense insurance can also be a good option for those who are not eligible for traditional life insurance policies due to their age or health status. In addition, individuals who want to ensure that their final wishes are carried out according to their wishes may also find final expense insurance to be a helpful tool.

Overall, final expense insurance can provide peace of mind for both the policyholder and their loved ones. It can help alleviate the financial burden associated with end-of-life costs and ensure that the policyholder’s final wishes are carried out. For these reasons, final expense insurance is an important consideration for many individuals.

How Final Expense Insurance Works

Let’s say you’re retired, no longer have life insurance through your employer, and don’t have an individual life insurance policy. Neither do you have a nest egg large enough to ease the financial burden on your spouse and/or kids when you die.

You’re considering a new life insurance policy. So you contact a life insurance agent and start the application process. This includes answering a few basic questions about your health. The death benefit is what you’re looking for, but the premiums are too expensive because of your age and health.

Unfortunately, the insurance company doesn’t issue policies with a death benefit that’s small enough to make the insurance premiums fit your budget. At this point you might give up, assuming that you can’t afford life insurance.

Final expense life insurance is designed to solve this problem. “The insurance companies built these policies to absorb the risk of some serious medical issues,” says Anthony Martin, CEO of Choice Mutual, a final expense life insurance brokerage company. “This means that most seniors, despite poor health, can still secure a policy.”

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Smaller Death Benefits

The smaller death benefit of final expense insurance makes the premiums more affordable, as Richard Sabo notes above. What’s more, the policy is permanent. No matter when you die, your heirs will get the death benefit you want them to have, as long as you paid the premiums.

Final expense insurance may not be enough to cover everything but it can help your loved ones pay at least some bills directly. These may be bills they’d otherwise have a hard time handling.

Benefits of Final Expense Insurance

  • Final expense insurance can relieve the worries of your family members because it provides them with money they may need to pay expenses related to your death.
  • It can be a welcome choice for people who can’t get any other insurance due to their age or health but want to ease some financial burdens for loved ones.
  • It’s affordable due to the lower coverage amount.
  • This type of insurance policy builds a cash value over time, so you may borrow from it or use it as collateral during your lifetime.
  • The premium amount never changes, which can be helpful for budgeting.
  • Coverage is guaranteed.
  • The policy cannot be canceled, even if your health deteriorates.
  • The death benefit, while aimed at final expenses, can be used for whatever a beneficiary decides is best—a legacy nest egg, mortgage payments, credit card debt, and more.

Special Considerations

Guaranteed Issue Final Expense Insurance

A second type of final expense policy is called guaranteed issue. Applicants with serious health issues will only qualify for a policy that does not require medical questions, an exam, or medical records. These guaranteed issue policies always have a two- to three-year waiting period before benefits will be paid.

If the insured dies during the waiting period, the beneficiaries will not receive the policy’s death benefit. They will, however, receive a return of the premiums the policyholder paid—plus interest, usually at an annual rate of 10%.3 For more on guaranteed issue policies, including how life insurance companies can afford to offer them, read our piece on guaranteed issue life insurance.

Graded Benefit Final Expense Insurance

There’s a third type of final expense insurance. It’s a graded benefit policy with a partial waiting period. This type of policy might pay 30% to 40% of the death benefit if the insured dies during the first year the policy is in force. It might pay 70% to 80% if the insured dies during the second year the policy is in force. If the insured dies after those first two years, then the policy would pay out 100% of the death benefit.

If you have health conditions that are only semi-serious, you might qualify for a graded benefit policy instead of a guaranteed issue policy. These health conditions include entering remission from cancer in the last 24 months, congestive heart failure, or treatment for alcohol or drug abuse in the last 24 months.

By comparison, a more serious condition, such as a terminal illness, currently being in cancer treatment, or having had heart surgery in the last 12 months, would only allow you to qualify for a guaranteed issue policy. With that policy, you’ll have to wait at least two years for any coverage.

No single insurer offers the best final expense insurance solution, says Martin. It’s important to get offers from multiple insurance companies to find the ones that view your health most favorably. Those companies will likely offer you the best rates. Trying to qualify for a policy with an approval process that only asks health questions is another way to keep rates down.

Even if you have a less-than-ideal answer to a health question, it does not mean every company will reject you. Some may offer you immediate coverage with higher premiums, a graded benefit policy, or a guaranteed issue policy.

Pros of Final Expense Insurance

Final expense insurance, also known as burial insurance, is a type of insurance that covers the cost of funeral and burial expenses. One of the most significant advantages of final expense insurance is that it provides a financial safety net for families during a difficult and emotional time. Here are some of the pros of final expense insurance:

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Firstly, final expense insurance provides coverage for funeral and burial expenses, which can be a considerable financial burden for many families. With final expense insurance, policyholders can have peace of mind knowing that their loved ones will have the funds to cover these expenses without having to dip into their savings or take out loans.

Secondly, final expense insurance does not require a medical exam to qualify for coverage. This can be especially beneficial for individuals who may have pre-existing health conditions that could make it difficult for them to qualify for other types of insurance. Final expense insurance typically only requires applicants to answer a few basic health questions, making it a more accessible option for many individuals.

Thirdly, final expense insurance typically has affordable premiums, making it a budget-friendly option for many families. Unlike traditional life insurance policies, which can have higher premiums, final expense insurance premiums are typically lower and can be customized to fit the policyholder’s budget.

Finally, final expense insurance policies offer guaranteed acceptance, which means that individuals who apply for coverage are typically guaranteed to be accepted regardless of their age or health status. This can provide peace of mind for individuals who may have difficulty qualifying for other types of insurance.

In conclusion, final expense insurance offers several advantages, including coverage of funeral and burial expenses, no medical exam requirement, affordable premiums, and guaranteed acceptance. These benefits make final expense insurance a valuable option for individuals looking to protect their families from the financial burden of funeral and burial expenses.

Cons of Final Expense Insurance

While Final Expense Insurance may offer certain advantages for those seeking end-of-life coverage, it also comes with several significant drawbacks. One of the most significant disadvantages of this type of insurance is that the death benefits tend to be lower than those offered by other types of life insurance policies. This means that beneficiaries may receive a smaller payout in the event of the policyholder’s death, which could impact their financial security and ability to cover final expenses.

Another potential downside of Final Expense Insurance is that coverage options may be limited. This type of insurance is often marketed to older adults or those with health issues, which can make it more difficult to find a policy that meets specific needs. In some cases, individuals may not be able to qualify for this type of insurance at all due to pre-existing conditions or other health concerns.

Finally, it’s important to note that premiums for Final Expense Insurance may increase over time. Unlike other types of life insurance policies that offer fixed premiums for the life of the policy, Final Expense Insurance premiums may be subject to change. This can make it difficult to budget for long-term expenses and may result in the policyholder paying more for coverage than anticipated.

Overall, while Final Expense Insurance can be a valuable tool for those seeking end-of-life coverage, it’s important to carefully consider the potential drawbacks before making a decision. Those seeking insurance coverage should weigh the benefits and costs of different types of policies and speak with a financial professional to ensure they make an informed decision that aligns with their needs and goals.

How to Choose Final Expense Insurance

Final expense insurance, also known as burial insurance or funeral insurance, is a type of life insurance that covers the costs associated with one’s funeral or burial. Choosing the right final expense insurance policy can provide peace of mind to you and your loved ones during a difficult time. Here are some factors to consider and tips for finding the right policy:

Factors to consider when choosing final expense insurance:

  1. Coverage amount: Determine how much coverage you need to cover funeral expenses, outstanding debts, and other final expenses.
  2. Premiums: Understand the cost of the policy, including premiums, and how they fit into your budget.
  3. Underwriting requirements: Final expense insurance policies often have simplified underwriting, meaning there may be no medical exam or only a few health questions.
  4. Riders and additional benefits: Consider any riders or additional benefits that may be available, such as accidental death coverage or accelerated death benefits.
  5. Insurance company rating: Research the financial stability and rating of the insurance company you are considering.
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Tips for finding the right policy:

  1. Compare quotes from multiple insurance companies to ensure you are getting the best coverage for your money.
  2. Consider working with an independent insurance agent who can help you navigate the different policy options and find the best fit for your needs.
  3. Read the policy carefully and ask questions to ensure you understand the coverage and any exclusions.
  4. Look for policies that offer flexibility, such as the ability to increase coverage or convert to a different policy in the future.

Choosing the right final expense insurance policy is an important decision that requires careful consideration. By understanding the factors to consider and following these tips, you can find the policy that best meets your needs and provides peace of mind for you and your loved ones.

Frequently Asked Questions

What Can a Final Expense Death Benefit Be Used For?

Anything. An insured may have intended that it be used to pay for things like a funeral, flowers, medical bills, or nursing home costs. However, the money will belong to the beneficiary, who can opt to use it for something else, such as credit card debt or a nest egg.

How Much Does Final Expense Insurance Cost?

That depends on a person’s gender, age, health, the coverage amount sought, and the state in which they live. Most websites offering it have calculators that can give you an idea of 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?

Not necessarily. If you have enough money set aside to cover the expenses that must be met after you pass away, then you don’t need it. However many people are unaware of the high (and growing) cost of funerals. Or that a hospital may present them with large, unexpected bills. If you don’t have money for these and other associated expenses, or regular insurance that could cover help them, final expense insurance could be a real benefit to your family.

Conclusion:

In conclusion, final expense insurance is a type of life insurance that is designed to cover end-of-life expenses, such as funeral costs, medical bills, and outstanding debts. It is an important policy to consider for those who want to ensure that their loved ones are not burdened with these expenses after their passing.

Throughout this article, we have discussed the benefits of final expense insurance and the factors to consider when choosing a policy. We have also explored the different types of policies available and the limitations of each.

In summary, final expense insurance provides peace of mind for both the policyholder and their loved ones. It is a cost-effective way to cover end-of-life expenses and can help prevent financial strain during a difficult time.

In our final thoughts, we recommend that you take the time to carefully consider your options and choose a policy that best fits your needs and budget. We also suggest that you review your policy regularly to ensure that it continues to meet your changing needs.

Overall, final expense insurance is an important tool in ensuring that your end-of-life expenses are taken care of and your loved ones are not left with a financial burden.