What Is Final Expense Insurance?

Annuity 1

    What Is Final Expense Insurance: Everything You Need To Know

    Final Expense 1 1

    Though we all know that death is inevitable, it doesn't make losing loved ones any less difficult. When someone close to us dies, we don't just have to deal with our grief, we have to deal with all the logistical and financial burdens that soon follow. Hospital bills, funeral rites, and caskets are just a few of the after-death expenses that can rack up a huge bill for those left behind.

    There are ways to ease the burden from our loved ones – one of them being final expense insurance. This particular type of life insurance can give you and your family the peace of mind that, whatever happens to you, there will be some money tucked away to cover funeral costs.

    But what is final expense insurance all about? And how is it different from regular insurance? In this article, we'll cover everything you'll need to know about the insurance policy.

    Understanding Final Expense Life Insurance

    Final expense insurance, also called "burial insurance" or "funeral insurance" is a type of whole life insurance that is marketed to people who are nearing their death, such as senior citizens. Final expense life insurance policyholders pay monthly premiums in exchange for a guaranteed death benefit – a lump sum that their beneficiaries can access once the policyholder has passed on. The death benefit can then be used to cover "final expenses" such as funeral or memorial services, embalming, a casket or urn, and/or cremation.

    Much like your typical whole life insurance, final expenses insurance provides life-long coverage, with premium rates and death benefits remaining fixed all throughout the lifetime of the policy. In some cases, the insurance policy will also come with an investment component called a cash value. This means that you may be able to borrow against the policy while you are alive.

    However, unlike most whole life insurance policies, this "insurance for burial" comes with a much smaller death benefit (around $2,000 to $50,000) and lower monthly premiums. Another difference between whole life and final expense insurance is the medical exam requirement. For the former, medical exams are part and parcel of the qualification process. For the latter, a medical exam is not necessarily required. But, do keep in mind that you may still be asked to answer a few questions about your health.

    Final Expense 2

    Who Needs Final Expense Insurance?

    Final expense life insurance isn't for everyone. If you already have a pretty comprehensive permanent life insurance policy OR a long term policy, paying for final expense insurance may be redundant, as the death benefit from these policies will likely be enough to cover your final expenses plus the living expenses of your remaining family.

    However, some circumstances specifically call for final expense insurance. For example, if you're retired and have no retirement or savings fund, your lack of a steady cash flow may hinder you from putting away enough money to cover the expense of your own funeral. Folks who are well past the age of 65 and still don't have any kind of life insurance policy should also consider a final expense policy. Life insurance premiums get more expensive as we age, and when we don't have very many people depending on our income anymore, there isn't much of a point to getting something as pricey as a whole or term policy.

    If you're in your sunset years and are deciding between getting whole/permanent life insurance and final expense insurance, you need to consider a few things: Do you have kids or a spouse who are financially dependent on you? Do you have any debts? And do you need frequent medical care? If you answer yes to all of these questions, you may be better off with a term or permanent life insurance policy. However, if your beneficiaries are more or less capable of caring for themselves and you're free of debt, you can get away with paying for the minimal coverage that final expense insurance provides.

    Final Expense 3 1

    What Can It Cover?

    Funeral expense insurance can cover a myriad of expenses, from funeral costs to personal debts to student loans. Here's everything that a final expense life insurance death benefit can cover:

    Funeral Costs

    The National Funeral Directors Association (NDFA) keeps a record of the median cost of a funeral in the United States. According to the 2019 study, the national median cost of an adult funeral with viewing and burial is $7,640 and $9,135 with a vault. The following are included in the costing:

    • Mandatory basic services
    • Transfer of remains to the funeral home
    • Embalming and other preparations of the body (cosmetology, grooming, etc.)
    • Facilities and staff for viewing and funeral ceremony
    • Hearse and service van for the family
    • Printed materials such as the register book, memorial cards, etc.
    • Burial casket
    • Vault

    Not included in the costing are fees for flowers, obituaries, and monuments or markers.

    For a funeral with viewing and cremation, the median cost is $6,645. This includes the following:

    • Mandatory basic services
    • Transfer of remains to the funeral home
    • Embalming and other preparations of the body (cosmetology, grooming, etc.)
    • Facilities and staff for viewing and funeral ceremony
    • Service van
    • Printed materials such as the register book, memorial cards, etc.
    • Cremation fee
    • Cremation casket and urn

    Medical Bills

    According to the Harvard Health Blog, each year more than 700,000 people die in hospitals in the U.S. For these 700,000 or so people, the average cost of their final month in the hospital is $32,379. While some of us may be lucky enough to have these costs covered by healthcare, unfortunately not everyone can say the same.

    All of this is to say that medical bills can take a huge chunk out of our own or our loved ones' savings. Final expense life insurance can help change that. Aside from confinement and emergency care, a final expense life insurance policy can also cover any outstanding payments for prescription medicine, hospice, and home care.

    Final Expense 4

    Additional Features

    Some life insurance providers will offer special riders – provisions that add benefits or make amendments to the policy – for final expense insurance. Here are a few examples:

    • Accidental death and dismemberment rider: If you die from an accident, this rider ensures that your beneficiaries are provided with additional life insurance coverage. Most often, this rider allows your beneficiaries to take twice as much as your original coverage.
    • Accelerated death benefit rider: If you are diagnosed with a terminal illness, this rider lets you collect a portion of your death benefit to pay for nursing care.
    • Family income benefit rider: With this rider, your beneficiaries will receive your life insurance death benefit on a monthly basis (like an income supplement) rather than as a lump-sum payment.
    • Child protection rider: In the unfortunate event that your child dies, this rider gives you coverage to pay for their final expenses.

    Can The Death Benefit Be Used For Other Reasons?

    Yes. While the primary purpose of final expense insurance is to give your loved ones a financial cushion to cover the cost of funeral, burial, or cremation procedures, your loved ones aren't required to use your death benefit solely for funeral or medical expenses. In fact, they can use the death benefit for virtually anything, from credit card debts to student loans to mortgage balances.

    Types Of Final Expense Life Insurance

    There are two types of final expense life insurance – guaranteed issue and simplified issue. Let's look at their key differences here:

    Guaranteed Issue Life Insurance

    As its name suggests, guaranteed issue life insurance is, more or less, guaranteed. This means that the application process will be shorter and easier to accomplish than that of the simplified issue policy. Typically, you will not even have to answer any medical questions.

    As a result, this final expense policy is often more expensive than simplified insurance. It also has a lower cap on coverage, usually allowing a death benefit of up to $25,000 only.

    Simplified Issue Life Insurance

    While you won't need to undergo a medical exam to qualify for this final expense policy, you may need to answer a few medical-related questions during the underwriting process. On the upside, you will likely be able to get much higher coverage under this type of policy. In some companies, you can get up to $50,000 worth of coverage.

    What Is The Application Process Like?

    The application process for final expense insurance is fairly simple. You'll be asked to fill out an application form with your personal information. Then you'll have to answer a series of medical and non-medical questions. From here, the insurance company will determine whether you're eligible for their policy and how much coverage they can give you.

    You will likely have to provide the following information:

    • Your height and weight
    • Your age and date of birth
    • Your current address
    • Your gender
    • Your occupation
    • Your lifestyle (i.e. hobbies and interests)
    • Your income
    • Your family medical history
    • Your personal medical history
    • Any pre-existing conditions you might have
    • Any medications you're currently on
    • Your alcohol, drug, and tobacco consumption and history of substance abuse
    • Whether you've tested positive for HIV

    After you fill out your form and answer all the questions, you will be asked to wait while your application is being evaluated. Your company may contact the Medical Information Bureau (MIB) to cross-check the information you provided, so be sure to be upfront and honest about your medical history. Depending on the company's policy, you may be asked to come into their office for a face-to-face meeting in which your coverage and any additional requirements will be discussed.

    Can Anyone Qualify For Final Expense Insurance?

    Since there is usually no medical exam, almost anyone can qualify for funeral or burial insurance. However, this doesn't mean that everyone will pass the application with flying colors. If you're terminally ill and undergoing palliative care, are in a care home, or are over the insurance company's age limit, you may not be able to qualify for coverage. Not all companies have the same age limitations and thresholds, however. Some companies may be unwilling to provide burial insurance to folks over 80, while others may be more generous and accept seniors until their 90s.

    When Final Expense 1

    How Much Does A Final Expense Insurance Policy Cost?

    The cost of premiums vary depending on the insurance company, the policy type, and the policyholder's personal data and health history. So, unfortunately, we can't provide a definitive answer on this. However, it's important for us to note that your answers to the questions mentioned above can affect the overall cost of your policy. How? Let's break it down:

    • Age and Gender: As mentioned earlier, the younger you are, the cheaper your insurance will be. In fact, some experts believe that premiums can rise by 8 percent for each year you age. When it comes to gender, women are at an advantage. Since men have short lifespans on average, women are more likely to receive more coverage at lower cost.
    • Your Lifestyle: Engaging in any type of risky or unhealthy behaviors, such as partaking in extreme sports (think skydiving, scuba diving, motocross racing, etc.), consuming large amounts of alcohol and tobacco, and even reckless driving, can all increase the rate of your premiums. This is because insurance companies see you as a high-risk client, meaning that you've probably got a higher chance of dying early.
    • Your Health: Although you're not required to take a medical exam to qualify for final expense life insurance, your overall health can still affect your premium rate. Again, it's about your insurance company seeing you as a high-risk policyholder. The "unhealthier" you seem, the higher your premiums.
    • Your State: Regulations on insurance practices vary from state to state, so read up on your home state's laws before applying for life insurance.

    Should You Get Final Expense Insurance?

    So you've looked up all there is to know about funeral insurance, yet you remain undecided. To help you decide on whether final expense insurance is for you, let us consider the pros and cons:

    Pros

    • Like most whole life insurance policies, final expense insurance provides lifetime coverage and a death benefit that doesn't change over time.
    • An insurance company isn't likely to ask for a medical exam. So even if you are in poor health, you may still qualify for final expense insurance. The same can't be said for other types of insurance policies.
    • Final expense insurance premiums usually stay the same up until the policyholder dies.
    • Depending on your insurance company, your final expense policy may come with a cash value component, which allows you to invest your money and borrow against your policy should you need to.
    • The death benefit is, for the most part, non-taxable.
    • The death benefit can be used for purposes outside of funeral costs and medical bills. This is useful if your family is capable of covering your funeral arrangements but needs to pay for a mortgage or credit card debt.
    • Typically, the premium rates for final expense life insurance are much lower than the rates for regular whole life insurance.
    • Purchasing final expense life insurance eases the financial burden off of your loved ones, giving them more room to grieve and process your death.
    • With a final expense policy, you're accorded the peace of mind that, whatever happens to you, your funeral can be prepared the way you want it.

    Cons

    • Getting final expense life insurance may not be worth it if you already have a policy that provides more comprehensive coverage.
    • If you live longer than expected, you could end up paying more than you'll actually receive. For example, a 65 year-old pays $150 each month for a $25,000 coverage. If that person is still alive by the time they hit 80 and they continue paying their monthly premiums, they'd have paid more in premiums than their family will receive upon their death.
    Final Expsense 6 1

    How Much Does A Final Expense Insurance Policy Cost?

    The cost of premiums vary depending on the insurance company, the policy type, and the policyholder's personal data and health history. So, unfortunately, we can't provide a definitive answer on this. However, it's important for us to note that your answers to the questions mentioned above can affect the overall cost of your policy. How? Let's break it down:

    • Age and Gender: As mentioned earlier, the younger you are, the cheaper your insurance will be. In fact, some experts believe that premiums can rise by 8 percent for each year you age. When it comes to gender, women are at an advantage. Since men have short lifespans on average, women are more likely to receive more coverage at lower cost.
    • Your Lifestyle: Engaging in any type of risky or unhealthy behaviors, such as partaking in extreme sports (think skydiving, scuba diving, motocross racing, etc.), consuming large amounts of alcohol and tobacco, and even reckless driving, can all increase the rate of your premiums. This is because insurance companies see you as a high-risk client, meaning that you've probably got a higher chance of dying early.
    • Your Health: Although you're not required to take a medical exam to qualify for final expense life insurance, your overall health can still affect your premium rate. Again, it's about your insurance company seeing you as a high-risk policyholder. The "unhealthier" you seem, the higher your premiums.
    • Your State: Regulations on insurance practices vary from state to state, so read up on your home state's laws before applying for life insurance.

    Should You Get Final Expense Insurance?

    So you've looked up all there is to know about funeral insurance, yet you remain undecided. To help you decide on whether final expense insurance is for you, let us consider the pros and cons:

    Pros

    • Like most whole life insurance policies, final expense insurance provides lifetime coverage and a death benefit that doesn't change over time.
    • An insurance company isn't likely to ask for a medical exam. So even if you are in poor health, you may still qualify for final expense insurance. The same can't be said for other types of insurance policies.
    • Final expense insurance premiums usually stay the same up until the policyholder dies.
    • Depending on your insurance company, your final expense policy may come with a cash value component, which allows you to invest your money and borrow against your policy should you need to.
    • The death benefit is, for the most part, non-taxable.
    • The death benefit can be used for purposes outside of funeral costs and medical bills. This is useful if your family is capable of covering your funeral arrangements but needs to pay for a mortgage or credit card debt.
    • Typically, the premium rates for final expense life insurance are much lower than the rates for regular whole life insurance.
    • Purchasing final expense life insurance eases the financial burden off of your loved ones, giving them more room to grieve and process your death.
    • With a final expense policy, you're accorded the peace of mind that, whatever happens to you, your funeral can be prepared the way you want it.

    Cons

    • Getting final expense life insurance may not be worth it if you already have a policy that provides more comprehensive coverage.
    • If you live longer than expected, you could end up paying more than you'll actually receive. For example, a 65 year-old pays $150 each month for a $25,000 coverage. If that person is still alive by the time they hit 80 and they continue paying their monthly premiums, they'd have paid more in premiums than their family will receive upon their death.
    Final Expense 7

    Written By Cameron McDowell
    Follow the author on:
    arrow-up