Final expense insurance, also known as burial insurance or funeral insurance, is a type of life insurance that is designed to help cover the costs of funeral expenses, such as burial costs, cremation costs, and other end-of-life expenses. Its policies are typically small, with coverage amounts ranging from $2,000 to $35,000.
Final expense insurance can be a valuable resource for families who are struggling to afford the cost of a funeral. It can also help to ease the financial burden on loved ones who are grieving the loss of a loved one.
In this ultimate guide to final expense insurance, we will discuss everything you need to know about this type of insurance.
What Is Final Expense of insurance?
Final Expense Insurance is a quickly approved whole life insurance policy with a modest death payout. Funeral insurance, burial insurance, modified full life insurance, and simplified issue full life insurance are some other names for final expense insurance. They’re all about tiny whole life insurance that ranges from $2,000 to $35,000 in face value and death benefit.
According to Richard P. Sabo, a financial planner and insurance fraud specialist in Gibsonia, Pennsylvania, there is no distinction between life insurance and final expense insurance other than that insurers provide more minor final cost insurance policies to make them more accessible.
A death benefit from final expense insurance is intended to pay for costs associated with cremation, embalming and a casket, funerals, or memorial services. On the other hand, beneficiaries are free to spend the death benefit any way they please—from vacationing to paying property taxes.
Understanding Final Expense Insurance
Once you have a policy, neither the death benefit nor the premiums can go down. A final expense insurance policy does not expire when you reach a specific age, unlike a term policy.
Additionally, a final expense policy builds up a cash value you can access anytime during your lifetime. The amount left over after you pass away will be less for your beneficiaries.
You won’t have to submit to a medical examination or grant the insurance company access to your medical data when you apply for final expense insurance. You will need to respond to a few health-related questions, though. Not every applicant will be eligible for insurance with immediate coverage due to the health questions.
Your age and health determine Final Expense Insurance rates and, if state law permits, your gender. These factors apply to all types of life insurance.
For a certain quantity of insurance, your rates will increase the older and less healthy you are. Because men often live shorter lives than women, they typically pay higher rates. Additionally, if you don’t smoke tobacco, you can be eligible for a lower rate from the insurer.
Final Expense Insurance and How it Works
Unlike most life insurance policies, which are typically purchased to replace a person’s income and provide for their family’s long-term financial requirements in the event of their death, last-dollar life insurance is different.
There are two varieties of insurance for terminal expenses:
#1. Simplified Issue Final Expense Insurance
For those in relatively good health seeking a way to pay for end-of-life expenses, the simplified issue is the best option. There are some health-related questions on the application, but no physical examination is necessary. For uncomplicated issues, coverage amounts usually reach $40,000.
#2. Guaranteed Issue Final Expense Insurance
For those whose age or health prohibits them from purchasing other life insurance coverage, a guaranteed issue is the best option. With assured issues, there are no health restrictions at all. Therefore, most people who meet the age requirements can get approved. Generally, coverage amounts can reach $25,000.
Cost of Final Expense Insurance
Depending on your age, sex, health, coverage amount, and preferred life insurance company, the typical monthly cost of a final-expense policy ranges from $30 to $70. Your premium will likely be higher and cost between $70-$120 per month (but it may be less) if you have significant health issues or are over 70. Younger candidates in good health can be eligible for rates between $20 and $50. Recall that lower rates typically translate into fewer advantages and features for surviving family members. When you’re gone, a few extra bucks a month could go a long way towards supporting your family.
Cost is frequently the primary consideration for many. However, it’s not the most crucial element! Consider how many expenses will remain after the coverage is purchased and how much they will cost your family rather than just how much the policy will cost. Funeral fees, credit card debt, and medical payments are everyday expenses. Each of these expenses will be discussed below.
#1. Medical Expenses
Higher prescription expenses, more expensive medical treatments, and health insurance that don’t always meet consumer demands are all results of the current situation in the healthcare business.
More than 80% of the 2.85 million Americans who passed away in 2019 did so while enrolled in Medicare. The final year of life is when Medicare spends a disproportionate amount of money on chronic illness, inpatient hospital stays, and hospice care.
The National Bureau of Economic Research estimates that government programs like Medicare and Medicaid only cover about two-thirds of senior citizens’ healthcare costs. Based on information gathered from the Medicare Current Beneficiary Survey between 1996 and 2010, the study estimated that the annual cost of healthcare for individuals 65 years of age and older was roughly $18,424 per person.
Medicare-covered hospice care in the following categories in 2016 for an average of $153 a day per person:
- The daily cost of routine home care is $193 for services that patients require daily.
- At least eight hours a day of continuous home care is available at $41 per hour to handle acute symptoms or emergencies.
- Inpatient respite care costs $173 per day and is intended to relieve unpaid carers temporarily for a maximum of five days. $744 a day is spent on general inpatient care, which cannot be given in another environment.
- Co-payments, prescription medication, emergency care, hospital stays, nursing care, and other costs associated with dying may still be the patient’s responsibility.
Many of them are left with a large debt, which they can’t always pay. Final expense life insurance shields close ones from having to foot the tab for unpaid medical bills.
#2. Debt
An Experian FileOne and Credit.com study indicates that 73% of American consumers pass away in debt. The average remaining balance, including mortgages, is approximately $61,554. Regretfully, this debt doesn’t simply go away. Usually, the estate distributes its assets to the surviving family members after paying off as many debts as feasible.
The research’s average breakdown of consumer debt is as follows:
- Loans for Students = $25,391
- Vehicle Loans: $17,111
- Individual Debt: $14,793
- Debt on credit cards: $4,531.
When all of the deceased’s debts have been paid, family members who depend on the deceased’s assets to pay for the funeral arrangements are frequently shocked to find that there isn’t enough money left over.
Conventional life insurance is typically utilized in proportion to the income your family would lose in the event of your death and is intended to provide them with a sufficient amount of money following your departure. The most popular income replacement insurance is term insurance, with face values up to millions of dollars.
Life insurance with last expenses is not the same. A final expense policy typically does not exceed $20,000 because its primary purpose is to pay for a single, specified debt, such as funeral or cremation arrangements (see How Cremation Works for additional information). Additionally, which is better for you: burial or cremation?
Families frequently assume that the funeral will be inexpensive or that the estate of their loved one will pay for it. However, most families are unaware that the average funeral expense can reach $9,000 or higher. Especially when there is a set amount available, final expense insurance can help lower these costs and keep families from emotionally overpaying.
#4. Funeral Expenses
A viewing and burial for an adult were expected to cost $8,755 on average in 2017 (including a vault). Families can spend thousands of dollars on funeral and cremation expenses, frequently in the days following the death of a loved one. Prices for only the casket, depending on the material and style chosen, might reach $2,000 or higher. Depending on the funeral home, families may pay between $300 and $1,000 to open and close the grave. The goal of final expense insurance, also referred to as burial insurance or funeral insurance, is to cover these costs.
What is Final Expense Insurance?
Final expense insurance, commonly known as burial insurance, pays for funeral costs and any outstanding medical or legal bills your beneficiary must pay. It also covers other end-of-life expenses.
Is Final Expense Insurance Worth it?
Buying final expense life insurance might be worthwhile if you’re an older adult in poor health who wishes to relieve some of your loved ones’ posthumous financial burden. Beneficiaries freely use your lump-sum death benefit to cover any necessary expenses.
At What Age Should You Buy Final Expense Insurance?
Final expenditure insurance is often an excellent choice for seniors and people with health issues; however, some types of final expense plans allow coverage without a medical examination for anyone between the ages of 45 and 85.
Who Qualifies for Final Expense Insurance?
Certain insurance firms offer final expenditure policies to individuals up to the age of 85. However, there can be a minimum age (like 45) and a maximum age (like 85) at which you can apply, based on the policy and the insurer. The older you get, the less of a total death benefit you can choose.
Why do People Get Final Expense Insurance?
The purpose of final expense insurance is to give your loved ones money to pay for your burial, funeral, and hospital costs.
What Can a Death Benefit for Final Expenses Be Used For?
Anything. An insured may have intended for it to be used to cover expenses such as a funeral, flowers, medical bills, or nursing home care. The money, however, will belong to the beneficiary, who can choose to use it for something else, such as credit card debt or a retirement fund.
What Is the Cost of Final Expense Insurance?
This is determined by a person’s gender, age, health, the amount of coverage desired, and the state in which they reside. Most websites that sell it have calculators that can give you an idea of how much it will cost. For example, a 65-year-old woman seeking a $10,000 face amount with no waiting period may pay around $41 per month. They’d pay $51 for a guaranteed acceptance policy. A 65-year-old male seeking a $10,000 face amount with no waiting period may pay about $54 per month, with a $66 guarantee.
Do I Need Final Expense Insurance?
No, not always. You don’t need it if you have enough money set aside to cover the expenses that must be met after your death. Many people, however, are unaware of the high (and rising) cost of funerals. Or that a hospital may present them with unexpectedly large bills. If you don’t have enough money to cover these and other associated costs, or regular insurance to cover them, final expense insurance could be a lifeline for your family.
Is Final Expense Insurance Necessary?
If you have significant savings, investments, and regular life insurance, you may not require final expense insurance.
However, given the rising costs of funeral and related expenses, you may simply want to consider final expense insurance to ensure that your family has enough money to cover the costs of your death.
If you cannot afford to purchase regular insurance that would alleviate the financial burden your death would place on others, final expense insurance may be an option.
Remember that even if your estate has enough money, a final settlement can take months. The funds may not be available in time, putting loved ones in financial jeopardy.
While Social Security provides a death benefit, it is only $255 (if you qualify).6
Final expense insurance could provide your beneficiary with immediate access to thousands of dollars during a difficult time.
Conclusion
You should first check to see whether you qualify for less expensive term life insurance coverage, which can offer a comparable benefit, as last-dollar coverage might be pricey for what you get. Final expense life insurance, however, can be a wise option if you cannot obtain term life insurance and are worried about your heirs’ ability to cover your final costs, mainly if you can get a policy without a waiting period.
Final expense life insurance isn’t for everyone, but it can be a good option for seniors who want to spend their last years with peace of mind, knowing that their funeral costs will be taken care of and that their loved ones won’t have to struggle to make ends meet while they grieve.
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