Funerals are expensive, with the national median cost at around $7,000 to $9,000. Unfortunately, too many people only think about our funeral and all the costs involved when it's too late.
As difficult and morbid as it seems, planning for your own funeral is a practical decision that can save you and your loved ones money down the line.
In this short guide, we'll talk about final expense insurance (also known as burial insurance and funeral insurance) and really analyze whether it’s worth the cost.
What Is Final Expense Insurance?
This is a type of life insurance for burial, cremation, and funeral costs. Final expense insurance can also be used to cover the cost of medical bills, hospice, and home care incurred in the policyholder's final months. In most cases, final expense insurance can also be used to cover a beneficiary's non-funeral/non-medical related expenses, such as student loans, personal debts, and mortgages.
Final expense insurance is a type of whole life insurance, and thus features more or less the same kind of benefits and restrictions. Here's what you'll get with a final expense life insurance policy:
A fixed but low death benefit: A death benefit is a lump sum given to a policyholder's beneficiaries when that person passes away. In a final expense life insurance policy, the amount remains fixed until the policyholder dies. One key difference between whole life and final expense insurance is the size of the death benefit. You can find whole life coverage of up to $100,000, $250,000, and even $1 million, while final expense coverage is much lower, with a death benefit of only $5,000 to $50,000.
Life-long coverage: Similar to other whole life insurance policies, final expense insurance provides lifetime coverage. The policy does not expire nor have to be renewed.
Unchanging rates: The premium is what the policyholder must pay on a monthly or annual basis to maintain their life insurance coverage. For some types of life insurance, the premium rate increases over time, but with final expense insurance – as is the case with most types of permanent life insurance – the premium remains the same until the end.
Cash value: This is an investment component that's common in whole life insurance policies. With cash value, you can keep and grow money in your life insurance policy. Depending on your provider and policy rules, you could have the option to take a loan from your cash value or withdraw the money before you die.
No medical exam: Most insurance providers require applicants to take a medical exam. This is to determine whether the applicant is insurable or considered too much of a risk to insure. With final expense insurance, however, medical exams are not usually required. At most, you will simply have to answer a few medical-related questions.
Higher than average premiums: While having no medical exam may sound good on paper, do keep in mind that this also means your premiums will be significantly higher. A 50-year-old male could pay more monthly for a $15,000 final expense policy than he would need to pay for a $200,000 term life insurance policy with a medical exam.
How Much Is Final Expense Insurance?
The exact cost of your funeral insurance will ultimately depend on a number of factors, including your age, lifestyle, and as mentioned, your overall health.
As with any other type of life insurance, your age will have the biggest impact on the cost of your burial insurance. The older you get, the more expensive insurance gets. This is why people are encouraged to get life insurance as early as possible.
Your lifestyle can also affect the cost of your burial insurance in a big way. By lifestyle, we're referring to your hobbies, attitude towards travel, drug-, alcohol-, and tobacco use, as well as your financial history.
Essentially, insurance providers want to minimize risk as much as they can and to do so, they require higher premiums for high-risk individuals. If you partake in activities that can, statistically, shorten your lifespan, you're thus considered a high-risk policyholder. So if you're a scuba diver, base jumper, heavy smoker, or even a person who works with heavy machinery and the sort, expect to pay higher premiums.
Finally, let's talk about your health. Your medical history and overall condition can affect the cost of your life insurance policy, but it doesn't affect all types of policies. While the most term and whole life insurance policies require a medical exam from applicants, burial insurance is a different story. As mentioned above, you're less likely to need a medical exam to qualify for final expenses, but the trade-off is that you'll be charged much higher rates.
Alternatives To Final Expense Insurance
Funeral insurance can be a great option for people who are in their sunset years. Seniors are less likely to have dependents who rely on them for things like daily expenses and tuition. This eliminates the need for a high death benefit, as you'll only need money to cover things like outstanding medical bills, funeral home arrangements, burial, and the like.
However, if you're still young and are planning to get married and have children in the future, final expense insurance may not be the most practical decision. For one, the low death benefit may not be enough to cover your spouse and/or kids' needs if you pass unexpectedly. Secondly, if you purchase final expense insurance at a young age, you can run the risk of overpaying well past the agreed-upon coverage, especially if you're a considerably fit and healthy person.
So what are your alternatives to this type of life insurance?
Term Life Insurance
One of the most popular types of life insurance, term insurance provides policyholders with coverage for a limited time, called a term. Terms can last anywhere between 10 and 40 years.
Unlike burial insurance, term life insurance applicants are required to take a medical examination. Because of this, and because of the impermanent nature of the policy, term life insurance is one of the most affordable options out there.
Unfortunately, one of the downsides of term insurance is the absence of a cash value. This means that your dependents will only be able to take home the death benefit when you pass. Additionally, if ever you outlive your term, your policy expires. You will either have to renew your policy, convert it to whole life insurance, or reapply for an entirely new plan.
Whole Life Insurance
Whole life insurance, also known as permanent life insurance, is another popular form of life insurance. Because it provides coverage all the way until the policyholder's death, whole life insurance doesn't run cheap. In fact, it can be up to 10 to 15 times more expensive than term insurance.
One of the main benefits of whole insurance is the cash value component. Not only will your loved ones be given a sizable death benefit when you pass, but they'll also be able to access the money you invested in the account.
Payable On Death Account
A payable-on-death account or POD is a kind of bank account that lets you set aside funds to pay for your funeral. You can name a POD to a designated beneficiary – usually close and trusted loved ones – who can access the funds by presenting a death certificate to the bank.
One of the great things about PODs is the fact that they do not have to go through probate, unlike with a savings account. What this means is that beneficiaries do not have to go through the long and arduous process of proving the validity of their claim to your money.
If you served in the United States military, you can be buried in a national cemetery without extra charges for things like grave markers or headstones. However, you or your beneficiaries will still need to pay for things like the use of the funeral home, embalming, transfer of the body, and the like.
Additionally, your beneficiaries are entitled up to $2,000 for final expenses if your death was service-related. If you died outside of service, your loved ones are entitled to receive up to $796.
Your surviving spouse and children may also be entitled to survivor benefits.
Pre-Paid Funeral Plan
These days, it is not unusual for a funeral home to offer a pre-paid funeral plan. With this option, you're completely in charge of every last detail of your funeral. This is great for people who are very particular about how they want to go, and what their last moments should look like.
However, this option has its downsides too. If you die out of state or abroad, it can be difficult and costly to transfer your body back to the funeral home of your choice. And if the funeral home tanks and has to close up shop? You lose all the money you put out for your plan.
How To Get The Best Life Insurance Policy
Whether you're set on burial insurance, term insurance, or even a payable-on-death account, these practical tips should help you find the best policy and make the most out of whatever option you settle on:
Make Sure To Compute How Much You Really Need
According to the National Funeral Directors Association, the national median cost of a funeral with viewing and burial is $7,640. Add a vault and that number jumps up to $9,135. If you opt for cremation, you may be able to save a little, as the median cost is $6,645, inclusive of casket and urn.
Now, this is just the median cost, meaning your total may change depending on the funeral home, casket and/or urn, and type of service you or your loved ones choose. The most practical route would be to plan your funeral early on and decide on your non-negotiables straight away. Then, you can shop around at different funeral homes and put together a basic estimate that should cover all the costs and then some. Be sure to leave a bit of allowance for things like outstanding medical bills and even debts you may leave behind when you pass.
Opt For Cremation
Though it isn't quite the standard yet, more and more Americans are choosing cremation over traditional burial. In fact, the cremation rate in the U.S. was at 54.6 percent by 2019, and experts predict that the number will only go higher as the years go by. Not only is cremation more cost-effective (as you can tell by the national median cost listed above), it's also more efficient in terms of space.
Bundle Your Insurance Policies
Some of the bigger insurance companies that offer multiple types of insurance will provide discounts for people who bundle their insurance policies. If you can get your auto insurance, home insurance, life insurance, and funeral or burial insurance all in one place, it's highly likely that you'll be able to save a considerable sum.
Pay Your Premiums Annually
Although it may seem more costly in the beginning, paying premiums annually – as opposed to monthly – will lead to bigger savings in the future. Insurance companies always offer their policies at a significantly cheaper rate for those who opt to pay yearly, simply because they won't have to cover the monthly fees themselves.
Work With An Independent Broker
Finally, the best thing you can do for yourself is to work with an independent broker. Find an agent who offers policies from different brands, as this person will often have a broader perspective on the current state of insurance policies. They'll be able to compare and contrast different policy options for you and pick one that fits you and your lifestyle better.
Plus, they won't be compelled to sell you something that just doesn't suit you, since they have more options to work with. Sometimes, brokers will try to force their company and policies onto applicants even if they don't suit the person's needs. With an independent broker, you'll have more of an objective, informed opinion.
So is a final expense insurance policy the right policy for you? The answer is never straightforward, unfortunately. Before you decide on an insurance policy, whether it's funeral expense insurance, term life insurance, whole life insurance, or something else entirely, make sure to consider things like your age, health, budget, and beneficiaries. Ultimately, the point of getting funeral expense insurance is to ease the burden from your loved ones as they reckon with their grief and to make sure that you can have the funeral that you so deserve.
At Wesley Insurance, LLC, we have a team of financial experts who can walk you through the ins and outs of life insurance, be it whole, term, funeral, or otherwise. Contact us to learn more about how you can protect yourself and your loved ones in your final moments.