When Should You Get Final Expense Insurance? How To Decide On End-Of-Life Coverage
Death is always tough for the ones left behind. Aside from the grief, which is difficult enough on its own, losing loved ones also often comes with additional financial stress.
Hospital bills, funeral costs, and other end-of-life expenses can add up to thousands of dollars – this is why many people invest in final expense insurance. But, when is the right time to take out a final expense policy? Does age matter? Health conditions? Are there other alternative options you should consider?
Read on to get the answers to those questions and more.
What Is Final Expense Insurance?
Final expense insurance is a type of life insurance that’s designed to cover funeral costs and other “final expenses” when someone dies. It’s sometimes also called burial insurance or funeral insurance.
Like most life insurance, beneficiaries are granted a death benefit when the policyholder passes away. Premiums are calculated based on several factors such as age, sex, and benefit amount.
But unlike traditional insurance, you don’t need to take a medical exam to qualify for a final expense policy, which makes it more accessible to older people, people with medical conditions, or disabled persons. Final expense insurance also doesn’t have an expiry date, so you’re covered as long as you pay your premiums.
Types Of Final Expense Insurance
There are two types of final expense insurance policies to choose from: simplified issue and guaranteed issue.
Simplified Issue Life Insurance
To qualify for a simplified issue life insurance policy, a health questionnaire is usually required. You will have to answer a few questions about your health status, although you won’t have to undergo a comprehensive medical exam. Generally, moderate or high-risk persons will find it difficult to qualify for a simplified issue policy.
Guaranteed Issue Life Insurance
With a guaranteed issue life insurance policy, on the other hand, you don’t have to answer any questions about your health. That’s why it’s called a guaranteed issue – you can’t be rejected for medical reasons, even if you have pre-existing conditions that would normally make you ineligible for any other type of life insurance policy. However, if you die within the first two years of the policy, your beneficiaries may only get a refund of your payments plus interest – not the death benefit amount.
Because there’s virtually no underwriting process for a guaranteed issue policy (and almost everyone can get one), you should expect these rates to be significantly higher than a similar simplified issue policy. The maximum death benefit that you can get will also be lower.
A Caveat On Graded Death Benefits
Sometimes, you may hear about a “third option”: graded death benefits. This isn’t technically a subcategory of final expense insurance since both guaranteed and simplified issue policies can offer a graded death benefit, although it’s more common with guaranteed issue policies.
With a graded death benefit, your beneficiaries won’t get the full benefit amount if you die in the first 1-2 years after taking out the policy. For example, if you pass away within the year, your policy might state that your family only gets 50% of the benefit amount. Then the coverage may increase to 75% in the second year, then 100% in the third.
A graded death benefit is often cheaper than a traditional policy. Also, if the death was accidental (e.g. car crash), benefits are usually paid out in full regardless of the policy terms.
Advantages Of Final Expense Insurance
Final expense insurance can help people who can’t afford or qualify for traditional whole life insurance. Here are some of the benefits of this type of life insurance policy.
Final expense insurance is one of the cheaper types of life insurance, especially if you fall under one of the “high-risk” categories. Depending on your age, gender, state, and health status, regular life insurance could be way too expensive for you – if this is the case, final expense insurance could be worth a second look.
Easier To Qualify
Most life insurance providers require a medical exam as part of the application process. Final expense insurance involves a health questionnaire at most, while some types (e.g. guaranteed issue life insurance) don’t have any medical requirements at all. This makes it a lot easier for people to qualify, even if they’re older or have a medical condition that would normally disqualify them from traditional life insurance.
Never Lose Coverage
Term life insurance only covers you for a specific period (e.g. 10-20 years). If you die outside of the covered period, your beneficiaries don’t receive any of the death benefit. But with final expense insurance, you’re guaranteed coverage as long as you keep paying your policy premiums.
Pay For Any End-Of-Life Expense
A final expense policy is designed to pay for funeral costs and other end-of-life expenses such as hospital debt, assisted living costs, and the like. But that’s not the only thing you can use your death benefit on. You can use it on pretty much anything, including your own debt, probate fees, education, and more.
Smaller Death Benefits
A traditional whole life insurance payout is anywhere from $100,000-$500,000, although some may have death benefits in the millions of dollars. In comparison, final expense life insurance benefits range from $5,000-$50,000. Some people only need a small payout to help pay for funeral expenses and spending more for a higher benefit would just be a waste of money.
Many whole life insurance policies have a waiting period where beneficiaries can’t access the funds yet. But with final expense policies, your beneficiaries will be able to tap into the benefit almost immediately. That means that no one has to pay out-of-pocket for your funeral expenses.
Peace Of Mind
When you die, finances and bills are the last thing on your loved ones’ minds. Having final expense insurance makes it so much easier for those who are grieving because they don’t have to worry about paying for your funeral. Consider it a final gift to the people you care about.
When You Should Get Final Expense Insurance
There are many scenarios in which this type of life insurance would be the best option for you:
You Need Permanent Insurance
The problem with term life insurance and other similar types is that you only get covered for a specific period. If you pass away after the period ends, your beneficiaries don’t get any of the death benefit and you’ve basically just wasted your money.
Final expense insurance is similar to whole life insurance in the sense that you’re always covered, as long as you keep up with your monthly payments. Keep in mind, however, that some companies won’t insure people over the age of 85. Or if they do, the costs are much, much higher.
You Have A Serious Medical Condition
Because the risk of death is higher, people who have pre-existing health conditions have to pay more in premiums – if they’re even eligible for life insurance at all. Final expense insurance does away with these strict medical requirements, allowing people with poor health to take out a policy.
But with all life insurance, you may not qualify for a final expense policy if you have a terminal illness. If this is the case, scroll down for a list of alternatives that can help your family pay for final expenses.
You Don’t Need A Huge Death Benefit
Traditional life insurance helps your loved ones by replacing your income after your death. But some people don’t need or want the extensive coverage that comes with whole life policies. If you only want enough to cover funeral costs and other end-of-life expenses, it doesn’t make sense to go through the rigorous application process and pay the costly premiums of traditional life insurance.
This is where final expense insurance comes in. With an average death benefit of $15,000, your loved ones will have more than enough to cover a casket, embalming, transportation, funeral services, and cremation and/or burial.
You Don’t Qualify For Other Types Of Life Insurance
There are many reasons that an insurance company can reject your policy application:
You are above the company’s age threshold.
You have a terminal or serious pre-existing health condition.
You have a disability that prevents you from working.
You are otherwise deemed too high-risk to insure.
Even if you can’t get other types of life insurance, you can still make sure that your family can cover your funeral expenses. Final expense insurance doesn’t require a medical exam and is generally accessible to everyone – just answer a few questions, and you’ll have your policy (and peace of mind).
When You Shouldn’t Get Final Expense Insurance
As affordable and accessible as funeral insurance is, it’s not always the most viable option. Here are a few cases where you might be better off without it or with a different type of life insurance policy.
You Need More Coverage
The death benefit of final expense insurance averages out at $15,000-$20,000, although you may be able to find providers who offer up to $50,000. But if you want your beneficiaries to receive more than that, you may want to look at other insurance options.
Your Finances Aren’t Stable
Burial insurance is significantly cheaper than most other policy types, but you should still expect to pay anywhere from $30-$70 a month. You risk losing coverage if you stop paying your premiums, so take into consideration your financial situation as well as your health status/life expectancy to figure out if funeral insurance is worth the cost.
You Already Have A Life Insurance Policy
If you already have life insurance (e.g. term, whole), look at the policy terms to see if you’re already covered for what you want. Check if your current insurance covers funeral costs as well as a health death benefit – if you already have those in your existing policy, then final expense insurance will just be an unnecessary drain on your finances.
You’re Young & Generally Healthy
Getting final expense insurance at a young age means cheaper rates and a higher chance of approval, but there’s also a trade-off. You are only covered for as long as you pay premiums, and you might end up spending more than what your funeral actually costs if you live a long and healthy life. You may be better off putting that money away in a savings account or taking advantage of lower life insurance rates instead.
Alternatives To Final Expense Insurance
If you decide that final expense insurance isn’t the right option for you, there are still many other ways to ensure that your family gets the money they need to cover your end-of-life costs. Below are just a few alternatives to funeral insurance:
Term/whole life insurance: Term or whole life insurance pays out a death benefit upon your passing. Term life policies cover you for a specific period, while whole life policies cover you for as long as you pay your premiums.
Payable on death (POD) account: You can set aside money in a POD account, which means you have full control over how much your family will get. Your beneficiaries can only access the funds after your death.
Pre-need insurance: Pre-need insurance is very similar to final expense insurance, except you sign up with the funeral home. You can decide, in advance, exactly how you want your funeral service to go and which plan you want, easing the burden on your family even more.
Funeral trust: A funeral trust allows you to allocate funds for your funeral with the funeral home rather than with an insurance company. Beneficiaries will be able to withdraw the funds after you pass away.
Self-funded funeral: If you want to pay for your funeral yourself, you can put the money in a savings account instead. This allows you to add money to the account at your own pace, but it may be difficult to transfer funds upon your death unless you add a beneficiary to a joint account.
Burial or funeral insurance is a great option for those who want permanent coverage or don’t qualify for other types of insurance. Since there’s no medical exam, even people in poor health or with pre-existing conditions can rest easy knowing that their family is covered after their death.
If you’re still unsure if final expense insurance is the right choice for you, we can help. Contact Wesley LLC today to learn more about your end-of-life policy options!