Final expense insurance also known as burial insurance or funeral insurance is just what it sounds like: an insurance policy designed to help pay for your funeral and other final expenses when you pass away.
Nobody likes talking about death or planning memorial services. But, shunning the subject altogether and not planning for it could put your loved ones in a difficult situation financially and emotionally, especially if you pass away unexpectedly.
Many people do not realize how expensive burial expenses are until they experience a loss and need to make arrangements. Funeral costs can vary widely based on location and the products and services selected. Expenses commonly run around $10,000 – $12,000 but some families may face higher costs in the $20,000 to $30,000 range, even up to $50,000.
What Is Final Expense Insurance?
Final expense life insurance is a type of permanent life insurance where the death benefit is used to cover expenses that arise when you pass away: outstanding medical bills, caskets, burial services, cremation, and more. It's also commonly known as burial insurance or funeral insurance.
Since final expense insurance is a type of permanent life insurance, it doesn't expire as long as the premiums are paid. Thus, the policy stays in effect until you pass away if you're making your payments on time, and upon your death the pre-determined value of your policy gets paid out to your beneficiaries.
What's great about final expense insurance is that they don't require medical exams or a lengthy underwriting process to verify your medical records. You typically just have to answer a few questions during the application process in order to get approved.
If you don't like someone poking you with a needle to draw blood, final expense insurance has got you covered.
How To Use Final Expense Insurance
Although final expense insurance is intended to be used for expenses that arise as a result of one's death such as funeral services, beneficiaries aren't actually required by the policy to use the money that way.
They can ultimately use it however they want – to buy a new car, pay off their expensive credit card debt, or even take a vacation. Although that's certainly not a wise use of the funds, especially since your end of life expenses have to be taken care of first. But if there happen to be excess funds leftover, it's good to know your loved ones have that flexibility.
Typically a policyholder will name someone they trust to fulfill their funeral plan to be the beneficiary of the policy. It may be possible to name a funeral home as the primary beneficiary of the policy to cover the cost of the funeral, and a secondary beneficiary to receive any leftover funds. But not every funeral home accepts this as a form of payment due to the time it can take for the final expense insurance policy to pay out.
Note: To further prepare and protect your family and loved ones from your passing, make sure to read my post: Preparing For Death Checklist
Benefits Of Final Expense Insurance
Funeral insurance has a lot of different pros that can benefit your loved ones.
- Guaranteed payout. The death benefit is guaranteed as long as premiums are paid.
- Flexible death benefit. Beneficiaries have flexibility on how they choose to spend the death payout.
- Payment options. Premiums are fixed and you can typically elect to pay them monthly or annually.
- Tax-deferred. The cash value of the policy grows tax-deferred.
- Dividends. Some final expense insurance policies earn dividends, which can grow from earned interest, be used to reduce a premium that's due, purchase paid-up additions, or be paid in cash.
- Affordable for those in poor health and seniors. Since no medical exam is required, final expense insurance policies can be relatively affordable to those with health issues or advanced age.
- Peace of mind. They provide peace of mind that your loved ones won't go into debt or have to drawn down on their savings to pay for your burial or other types of final expenses such as outstanding medical bills.
Downsides Of Funeral Insurance
Here are some cons to be aware about when shopping for final expense insurance aka burial or funeral insurance.
- Not the best value. Although the premiums of final expense insurance tend to be low dollar amounts, term life insurance policies are much better value but can be harder to qualify for.
- Could lose money. Keep in mind if you happen to live a long time (a good thing for you of course), you could wind up paying more in premiums than the death benefit that your beneficiaries will receive.
- May qualify for better coverage. If you don't have any major health problems, you could qualify for better coverage. So be wary if an insurer is pushing a more restrictive and expensive policy on you unnecessarily.
- Be aware of scare tactics. Unfortunately, some insurers try to take advantage of seniors' fears of burdening their families and loved ones with high average funeral costs and using confusing or incomplete marketing materials.
Two Forms Of Burial Insurance
Final expense insurance is offered as either guaranteed issue life or simplified life.
Guaranteed issue life: offers lower maximum coverage amounts, typically at or below $25,000. Only requires a few simple questions to rule out terminal illnesses, and otherwise covers high-risk individuals. You can read more about guaranteed issue life insurance here.
Simplified issue life insurance: requires a more in-depth medical questionnaire, without a medical exam; covers those who may not qualify for fully underwritten life insurance policy, but are considered only moderate risk. A good way for those to affordably access coverage up to $50,000. You can read more about simplified issue life insurance here.
How Much Does Final Expense Insurance Cost?
The cost of final expense insurance is about the same as a term life policy, for ten times less coverage because no medical exam is required, and because it’s aimed for older or less-healthy individuals. If you're interested in buying final expense life insurance, Choice Mutual is an agency that helps clients find the best final expense insurance plan from its network.
Here's an example of the costs for a guaranteed issue final expense insurance policy, a simplified issue final expense insurance policy, and a term life policy for a 68-year-old man.
| TYPE | LENGTH | COVERAGE | COST |
|---|---|---|---|
| Guaranteed | N/A | $25,000 | $161.51 |
| Simplified | N/A | $25,000 | $255.79 |
| Term | 10 years | $250,000 | $164.84 |
As you can see, the 10-year term life policy is around the same cost as the cheaper final expense policy. While the term policy expires in 10 years, a $100,000, 20-year policy would still only average around $171 a month.
If you want some extra motivation to get your finances in order for however many remaining years you have, check out my post How Much Should I Have Saved By Age.
Key Takeaways
- Final expense insurance is type of small whole life insurance policy that is easy to qualify for.
- Even though they are marketed as funeral insurance policies, the beneficiaries of a final expense life insurance policy can use the policy’s payout for any purpose whatsoever.
- The typical death benefit of a final expense insurance policy is usually between $2,000 and $50,000.
Get Free Life Insurance Quotes Today
Related: How Does A Death Or Suicide Affect The Value Of A House?
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About the Author: Sam started Financial Samurai in 2009 as a way to make sense of the financial crisis. He proceeded to spend the next 13 years after attending The College of William & Mary and UC Berkeley for b-school working at Goldman Sachs and Credit Suisse. He owns properties in San Francisco, Lake Tahoe, and Honolulu and has a total of $810,000 invested in real estate crowdfunding.
In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $300,000 a year in passive income. He spends time playing tennis, hanging out with family, consulting for leading fintech companies and writing online to help others achieve financial freedom.