Types Of Final Expense Insurance

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    Types Of Final Expense Insurance: How To Choose The Right Policy

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    Getting final expense insurance is one of the most thoughtful things you can do for your loved ones. It lets you ensure that your end-of-life expenses won't be a financial burden to your family.

    But, before you buy final expense insurance, it's best to familiarize yourself with all the options available. In this guide, we'll cover all the types of policies you can choose from, including their unique features and benefits – we'll also answer some frequently asked questions on the topic.

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    What Is Final Expense Insurance?

    Also called ‘burial insurance’, final expense insurance is a type of whole life insurance that is meant to cover the insured person's final expenses, such as their funeral costs, medical bills, legal fees, and remaining debts.

    Since a final expense policy is only meant to cover the insured person's end-of-life expenses, it has a lower death benefit compared to traditional whole life insurance. Typically, the payout from a final expense policy is around $5,000 to $25,000. This amount is usually enough to cover funeral costs, along with some medical bills and other final expenses.

    Another key aspect of final expense life insurance is that it won't require applicants to take a medical exam. That makes it a great option for people who can't qualify for traditional whole life insurance.

    Most final expense insurance policies stay in force until death, assuming that premiums are paid in full and on time. Keep in mind, however, that some life insurance companies only provide coverage until the insured person reaches 100 years old.

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    Which Type Of Final Expense Insurance Is Right For You?

    There are several kinds of final expense insurance, and your health and age will determine which one fits your individual situation. As a rule of thumb, it's best to go for the type of policy with the strictest requirements, since it usually comes with cheaper premiums and better coverage.

    Let's look at the features of each type of policy and see which one is right for you.

    Guaranteed Issue Life Insurance

    Guaranteed issue (or guaranteed acceptance) life insurance is a type of policy that individuals can buy without being subjected to a medical exam or answering an array of health questions. Since there are very few qualifications, anyone from ages 50 to 85 can buy this type of insurance, regardless of their health or financial status.

    Compared to other types of life insurance policies, however, the death benefit of a guaranteed issue life insurance policy is smaller. Premiums are also more expensive.

    Still, individuals with serious health conditions can benefit from getting this type of final expense life insurance. People who have been recently diagnosed with diabetes or cancer, for example, can easily qualify for this type of policy.

    Keep in mind that guaranteed issue life insurance policies typically come with a 3-year waiting period. If natural death occurs within three years after the policy has been issued, the beneficiaries will not be able to claim a death benefit. Still, beneficiaries can usually get back 100% of the premiums that the policy owner has paid, plus interest.

    If the policy owner dies from an accident during the waiting period, beneficiaries can claim the death benefit in full. In the event of suicide, premiums will be refunded, though there will not be a death benefit.

    Simplified Issue Life Insurance

    If you're in relatively good health, it's best to check if you qualify for simplified issue life insurance. It costs less than a guaranteed issue policy and does not come with a long waiting period.

    Just like the name implies, the underwriting process is relatively simple. You don't have to take any sort of medical exam to qualify for this type of insurance.

    However, you'll have to answer a set of health questions. It's important to be as honest as possible during this process since insurance companies can contest claims if they feel that some of the information you've provided is false.

    Simplified issue policies can be further subdivided into the following:

    Level Benefit Final Expense Insurance

    For this type of policy, beneficiaries can claim the full death benefit immediately after the application is approved. Another advantage of getting this type of final expense policy is that it's usually the cheapest in terms of price. Its coverage is also higher compared to other plans.

    Level benefit final expense insurance is only issued to applicants who only have minor health issues that can easily be managed with medications. You should have no major medical diagnosis or treatment in the past three years, including heart attack, respiratory disorders, diabetes, internal cancers, COPD, Crohn's disease, cerebral palsy, leukemia, or MS.

    Graded Benefit Final Expense Insurance

    People who have not had any major illnesses for the past 24 months may qualify for graded benefit final expense life insurance.

    Graded benefit insurance pays out a death benefit that increases over time. For example, beneficiaries can claim 30% of the benefit if natural death occurs within the first year after the policy was issued. They claim 70% of the benefit if natural death occurs in the second year. By the third year, they can claim the death benefit in full.

    Just like other final expense life insurance policies, beneficiaries can claim the full death benefit if accidental death occurs after the policy has been approved. In the event of suicide, beneficiaries can only claim premiums that the policy owner has paid, plus interest.

    The premiums for graded benefit life insurance is usually cheaper because it puts less risk on the insurance company.

    Modified Benefit Final Expense Insurance

    Individuals who have one or more serious conditions may still be able to qualify for a modified benefit final expense insurance policy.

    This type of life insurance comes with a waiting period of two years, compared to a guaranteed issue policy, which comes with a waiting period of three years. The full benefit will be paid if accidental death occurs after the policy has been approved.

    Funeral/Preneed Policy

    A funeral or preneed policy is purchased directly from a funeral home. It allows you to lock in funeral prices at the time of purchase and helps you beat the effects of inflation. Typically, a funeral policy covers the cost of the memorial service, the embalming process, the casket, and the burial plot.

    One advantage of getting a preneed or prepaid plan is that it puts less pressure on your family to organize a memorial service. You can begin coordinating with the funeral home anytime, then start planning your preferred service in advance.

    Another advantage of getting a preneed funeral plan is that you are not required to answer a set of health questions. With that said, people who have discovered one or more health conditions within the last year may still qualify for this policy.

    Note that a preneed policy usually comes with various payment options. You can pay for it in 1, 5, or 10 years. However, once you choose a plan, it's almost impossible to change.

    In the case of a preneed funeral policy, your family will not receive any money after your death. They can only ask the funeral home to begin arranging your funeral and preparing your memorial service. So, the policy proceeds cannot be spent on anything other than your funeral expenses.

    Another thing to keep in mind about prepaid plans is that they’re quite restricting. If you end up moving to another state, for example, you might not be able to avail of your prepaid funeral plan.

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    End-Of-Life Expenses: What You Should Expect

    Before you buy a final expense policy, it's crucial to learn more about end-of-life expenses. That way, you can determine how much life insurance coverage you need.

    Funeral Costs With Burial

    Based on information from the National Funeral Directors Association, a funeral with viewing and burial can cost up to $9,135. Note that this amount may not even include the cost of flowers, burial plots, markers, and obituaries. If you're buying a prepaid plan, be sure to ask about these extra charges.

    Here is a breakdown of some of the expenses:

    • Non-declinable basic services fee: $2,195
    • Removal/transfer of remains to the funeral home: $350
    • Embalming: $750
    • Preparation of the body: $255
    • Use of facilities/staff for viewing: $425
    • Use of facilities/staff for the funeral ceremony: $500
    • Hearse: $340
    • Service car/van: $150
    • Printed materials: $175 (for a basic package)
    • Metal burial casket: $2,500
    • Vault: $1,495

    Funeral Costs With Cremation

    The median cost of an adult funeral with viewing and cremation can cost up to $6,645. Here is a breakdown of some of the expenses:

    • Non-declinable basic services fee: $2,195
    • Removal/transfer of remains to the funeral home: $350
    • Embalming: $750
    • Preparation of the body: $255
    • Use of the facilities/staff for viewing: $425
    • Use of facilities/staff for the funeral ceremony: $500
    • Service car/van: $150
    • Printed materials: $175 (for a basic package)
    • Cremation (third-party): $350
    • Cremation casket: $1,200
    • Urn: $295

    End-Of-Life Care

    Most people require end-of-life care in their final days. Medicare estimates that the average cost of hospice care for patients amounts to about $12,000 per patient.

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    How Much Is Final Expense Insurance?

    Typically, a 50-year-old male can expect to pay around $46 per month for final expense insurance. This may change depending on your age, sex, health history, and smoking habits.

    Benefits Of Final Expense Insurance

    Final expense life insurance is a great option for people who would otherwise not qualify for life insurance that requires a medical exam. Here are some of its key benefits.

    Affordable Rates And Flexible Payments

    Since the death benefit for final expense insurance is smaller compared to whole life insurance, the monthly premiums are also cheaper.

    If you want the lowest rates possible, it's best to work with an independent agent. They usually represent multiple insurers to help you find the cheapest option, depending on your unique needs and situation.

    Once you're approved for a final expense life insurance policy, the rate of your premiums won't change until your death. Plus, you can typically choose between monthly or annual premiums.

    Provide Financial Relief For Your Grieving Loved Ones

    Paying for final expenses can put a lot of pressure on your grieving loved ones. If you don't want to leave your family with a financial burden, then getting this policy is ideal.

    Another advantage is that the death benefit of this type of policy is paid out to beneficiaries within a few days. That gives them instant access to cash to pay for final expenses. By comparison, it can take months for beneficiaries to gain access to money they inherit from your estate.

    Organize Your Own Memorial Service

    Organizing a memorial service can put a lot of pressure on your loved ones. They might feel the need to spend more than they can afford since they may want to honor your life in the best way possible.

    If you have a policy that covers your final expenses, however, you'll be able to help your loved ones set a budget. You can also organize the type of memorial service you want and coordinate directly with the funeral director.

    Add Policy Riders To Your Plan

    Giving your beneficiaries the ability to claim a death benefit isn't the only advantage of getting a final expense life insurance policy. You can also stack other features (known as riders) to your insurance plan. This includes additional payments for accidental death and dismemberment. Some insurance companies also allow you to add support for surviving loved ones.

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    FAQs On Final Expense Insurance

    Buying any type of insurance is an important financial decision. To help you learn more about shopping for a final expense policy, we've answered some of the most frequently asked questions on this matter.

    Are Insurance Payouts Taxable?

    Usually, the payout from a final expense life insurance policy is not taxable. However, any interest that the policy has gained is subject to tax.

    Will Smoking Affect The Cost Of Premiums?

    While the application process for final expense insurance won't require you to take a medical exam or answer an extensive list of questions regarding your health, smoking will still affect the cost of your premiums.

    How Much Coverage Should I Buy?

    Final expense insurance should be enough to cover the cost of your memorial service, burial, and other related costs. Other than that, it should provide your family with enough funds for the next three months while they take time to grieve.

    Once you've come up with a ballpark figure, you should factor in the effects of inflation. While there are several calculators online that will help you do this, it's best to consult your insurance agent so that you can come up with a good estimate.

    Does Final Expense Insurance Accumulate A Cash Value?

    Just like other types of whole life insurance, a final expense policy comes with a cash value. As you continue to pay premiums, the account grows in value. If needed, you can take a loan against the policy.

    One advantage of having a life insurance policy with a cash value is that you won't have to go through a credit check or application process before you can take out the money. Also, loans against the cash value of your policy won't show up on credit reports.

    I’m A Veteran. Do I Need Final Expense Insurance?

    Veterans receive burial benefits of up to $2,000 for service-related deaths. They can also receive as little as $300 for non-service related deaths. Given that funeral costs add up to thousands of dollars, this benefit probably won't be enough to cover your final expenses.

    Won't Social Security Cover Funerals?

    The lump-sum death benefit from social security only amounts to $255. Usually, this will not be enough to cover end-of-life expenses.

    I Already Have A Regular Life Insurance Policy. Do I Need Final Expense Insurance?

    Final expense insurance is a great supplement to a traditional whole life policy. That way, your beneficiaries don't have to subtract money from your whole life policy to cover your final expenses.

    Who Should I Pick As My Beneficiary?

    Picking a beneficiary is just as important as choosing the correct type of insurance. In general, they should be someone you trust to make the best decision regarding the proceeds from your insurance.

    Once you've chosen someone to be your beneficiary, be sure they know where to locate your original policy. Insurance companies will usually request a copy of this before releasing the death benefit.

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    Conclusion: Find The Policy That Fits Your Needs

    Final expense insurance is a useful tool that helps ensure that your end-of-life expenses will be fully covered. People who are shopping for this type of policy can choose from guaranteed issue, level benefit, graded benefit, modified benefit, or preneed funeral policy.

    The best type of final expense policy for you depends on your individual needs and health condition. If you have any questions about which type of final expense life insurance you should buy, contact our agents at the Wesley LLC. Our team will be happy to assist you.

    Written By Cameron McDowell
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