Final expense policies are small guaranteed life insurance policies designed to cover the cost of a funeral and other end-of-life expenses.
As the years go by, most people’s financial obligations dwindle, lessening the need for a large life insurance policy later in life.
But regardless of your age, your loved ones will be faced with the challenge of paying for your funeral.
A final expense policy could be the solution, providing peace of mind for you and relief for your family when they need it most.
In this article:
- What is final expense insurance?
- How it works
- How much it costs
- Tips for buying final expense insurance
- Is it worth it?
What Is Final Expense Insurance?
Most types of life insurance like term or universal can be used to meet a wide variety of financial needs, from replacing income to paying the mortgage to covering estate taxes.
Final expense insurance is different, providing specifically for things like burial plots, caskets, funerals, and minimal medical bills left behind.
As such, these permanent policies are small, usually maxing out at $25,000 to $50,000.
Most carriers who offer burial insurance make it available to those aged 50 to 85.
How Final Expense Insurance Works
Like traditional whole life insurance, burial insurance allows the insured or owner to pay one consistent premium for the life of the product.
The death benefit will not decrease, and the policy will not expire as long as the policy is kept current.
Some burial insurance plans even have a cash value component within the contract, which grows tax-free. Just understand all loans will affect the final payout.
In terms of how the benefit is paid out, there are two types of benefits:
- Level benefits: You are entitled to a full death benefit payment from the day you’re approved.
- Graded benefits: You will not receive full payment within the first few years of the policy.
With graded benefits, you might get one of two things:
- Return of premium + interest: In the first two years, beneficiaries could receive the amount paid into the policy, with 10% interest. After the three-year mark, they usually receive the full death benefit.
- Partial payments: Your beneficiaries would receive a percentage of the death benefit, often 40% in year one, 70% in year two, and the full death benefit in year three or later.
How exactly your policy is underwritten and paid out depends on which type of coverage you choose.
Types of Final Expense Insurance
As far as underwriting and actual coverage are concerned, there are two fundamental types of final expense policies: guaranteed issue and simplified issue.
Let’s take a closer look at each:
Guaranteed issue policies are the easiest to qualify for from a medical standpoint, only asking a few basic questions to ensure you don’t have a fatal condition.
You can usually get approved for these policies with some high-risk conditions.
The catch is that guaranteed policies are small, often limited to $10,000 of coverage, and up to $25,000 with some carriers.
These policies usually come with graded benefits as well.
Simplified issue policies are a better option for people who might have a hard time getting traditional coverage due to their age or some less risky health issues.
These policies come with a more in-depth questionnaire but do not require any medical exam or bloodwork.
If you’ve not had major surgery, your health is well controlled with medications or minor treatment, and your height to weight ratio (also called BMI) is within reason, you may qualify.
You could get double the coverage with a simplified policy, with many companies offering up to $50,000 with level benefits.
How Much Does Final Expense Insurance Cost?
While health is one of the biggest determining factors for the cost of other types of life insurance, final expense policies are tailor-made for people with health problems.
Instead, the cost will mostly be determined by:
- Age: The primary factor that impacts the cost of final expense insurance is age. The older you are when you apply, the higher premiums you can expect to pay.
- Policy type: While a guaranteed policy is easy to get, the cost per thousand is usually the highest of any policy type.
- Company: Which provider you choose can have a big impact on your premiums. Some companies specialize in burial insurance and offer lower rates than others.
On average, an applicant in his late sixties might pay close to $160 for $25,000 of guaranteed coverage, whereas he might pay the same amount for $250,000 of term coverage for 10 years.
Once again, guaranteed policies should be a last resort as you can save more on other types of policies if you’re able to get approved.
Tips for Buying Final Expense Insurance
If you need life insurance to pay for final expenses, take the following pointers into account as you shop for a policy.
Calculate Your Needs
The first step when you buy life insurance is determining how much coverage you need.
The average funeral costs around $9,000, a good starting point for a final expense policy. Excess funds can be used at the beneficiary’s discretion to cover medical bills and the like.
If you have additional life insurance needs, like income replacement or a mortgage, a final expense policy will not provide an adequate amount of coverage.
Know the Alternatives
If you’re considering alternatives to the final expense policies described above, there are a few other ways to pay for a funeral.
Term Life Insurance
Medically underwritten life insurance policies tend to be less expensive and more expansive than guaranteed policies.
If you can get approved, you could secure about 10x as much coverage with a term life insurance policy for the same cost as a small final expense policy.
You may be surprised at the coverage you’re eligible for, even with some high-risk conditions.
If you want to completely unburden your family from the concerns of planning and paying for a funeral, you might want to consider a preneed policy.
Also referred to as a funeral policy, preneed insurance is an arrangement with a funeral home that involves pricing and arranging all the details of the service, burial, or cremation in advance.
The mortuary is the beneficiary of this type of policy rather than your family, and the policy amount is made to match the price of the funeral that you and the funeral director agree upon.
A third alternative to purchasing a final expense policy is self-insuring.
Self-insuring is simply having enough assets to cover your dependents’ financial needs without life insurance.
If your only real reason for life insurance is paying for your funeral, consider the feasibility of saving enough money for some or all of your final expenses.
Depending on your age and the rates you’re eligible for, this option could make more sense.
Choose the Right Policy
The best life insurance companies for burial insurance policies are the ones who provide exactly what you need.
While price is a primary factor, all burial policies are not built the same.
If you simply want minimal coverage in place and prefer a low premium, opting for a 3-year graded death benefit instead of a 2-year policy might save you a few extra bucks.
If your health is bad, the latter option might be more fitting.
Is Final Expense Insurance Worth It?
Final expense policies can provide affordable access to the most basic level of protection, ensuring your loved ones won’t have to stress over paying for your funeral.
While term life insurance is the cheapest way to cover funeral expenses and other financial obligations, if you can’t get approved for medically underwritten coverage, a small final expense policy could be worth it.
To get the lowest rates on final expense insurance, you should take a few moments to compare quotes from multiple providers.