Final Expense Life Insurance: What You Need to Know

Also known as burial or funeral insurance, final expense life insurance is a variant of whole life insurance designed to cover a single expense after the policyholder passes away. Often aimed at seniors, these insurance policies have reasonable monthly premiums but generally pay much smaller death benefits than term life insurance policies.

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What is Final Expense Life Insurance?

Final expense life insurance is a whole life insurance policy that releases a lump sum when the policyholder dies. It charges a fixed monthly premium and generally offers a simplified sign up process, with few complications, fast decisions, and no medical exams.

Policyholders use final expense life insurance to protect their loved ones after their death. It’s often taken in lieu of a traditional whole life policy or term like policy, with the former not available to seniors and the latter proving very costly and limited. 

Policyholders can add a beneficiary to their final expense life insurance policy to ensure that the money goes to this individual when they die. They can also arrange for the money to be paid in monthly or yearly installments, although considering the purpose of this policy is to cover “final” expenses that may arise or remain after death, it’s often best to release it as a lump sum.

Who Can Benefit from Final Expense Life Insurance?

You can benefit from a final expense life insurance if you:

  • Have dependents
  • Don’t have a whole life or term-life policy
  • Have sizeable debts
  • Are worried about funeral costs

Think about what will happen when you die. It’s a morbid thought to have, but it’s important to see things from your family’s perspective.

Can they afford to provide you with an honorable send-off; can they afford to clear your debts? Will your death impact them financially or will you leave them with enough cash and assets to cover necessary expenses?

Your loved ones need time to grieve, to mourn your loss. They shouldn’t have to worry about financial issues, as that will just make a bad situation worse.

What is Final Expense Life Insurance Used For?

You can use final expense life insurance to cover any costs that your loved ones would otherwise be required to pay. The most common uses for this type of life insurance include:

Funerals

The average funeral costs close to $10,000, and those costs are rising. It’s one of the five biggest expenses that the average American will incur during their lifetime, and unlike a wedding, car or home, it’s not something you can simply avoid by going without, nor is it something you can delay until you have more money.

If you die, your loved ones will need to cover these costs quickly and completely, and while you might want them to cut costs and avoid spending too much, they will want to ensure that you have the best possible send-off. 

The only way to guarantee that you have a good funeral and they don’t bankrupt themselves is to cover the costs before you die.

Final expense life insurance can be paid directly to your loved ones or to the funeral home. In the case of the latter, you can plan your funeral yourself, choosing products and services based on the value of the death benefit that will eventually be paid to the home.

Of course, you can’t be sure that the funeral home will honor all of your requests or even still be operating by the time you pass, so unless you don’t have anyone who can arrange your funeral, we recommend paying the death benefit directly to your beneficiaries.

Medical Bills 

You are predicted to spend over a quarter of a million dollars on healthcare during your lifetime, most of which will occur in the final decade of your life. That’s a huge sum of money to spend on anything, and it’s a terrifying prospect to think that this money could be passed onto your loved ones.

In most instances, your loved ones won’t be responsible for your debt, but there are exceptions. What’s more, all medical debt charged during the final months of your life will be at the head of the queue to take money from your estate when you die. If that debt strips your assets bare, it means your loved ones won’t get anything and may struggle to cover their own debts and expenses.

With final expense life insurance, you can use a death benefit to repay those medical bills and remove the burden of responsibility from your loved ones.

Debt

Unsecured debt is often at the back of the queue when it comes to taking money from your estate. However, if you live in a community property state or your partner cosigned on the debt, they will be responsible for it.

You also have to think about mortgage and auto debt. These loans can pass onto your heirs, who will then be tasked with continuing the repayments if they want to keep the assets. If they don’t have the money, they could lose those assets, and this is where a final expense life insurance benefit can help. 

Frequently Asked Questions about Final Expense Life Insurance

Still got a few questions about final expense life insurance and its many nuances? We have answered some of the most frequently asked questions below to lend a helping hand.

How Much Does It Cost?

Final expense life insurance varies depending on your age, sex, weight, smoking status, and whether or not you have any preexisting medical conditions. Generally speaking, a woman between the age of 50 and 55 can expect to pay between $30 and $40, while a man of the same age will be charged between $40 and $50.

This cost increases as you age and while you can still apply when you hit 80, you can expect premiums as high as $200 a month, or $2,400 a year. 

Why Does it Cost So Much?

The costs are higher than term-life insurance because the risks are greater. Unlike term-life insurance, the term will not expire, which means the odds of the recipient receiving the death benefit are higher. 

Of course, there is still a chance that they will fail to meet their payment obligations, at which point the policy will void, but such instances are rare for this particular type of insurance.

Does it Expire?

Your final expense life insurance policy will remain active for as long as you make your insurance premiums. It will not expire like a term-life insurance policy, but you will lose it if you stop making payments while you are still alive.

Does the Money Have to be Used for Funeral Costs?

Not at all. The insurance company doesn’t care what the money is used for as it doesn’t impact their bottom line. There is also nothing preventing your loved ones from pocketing the cash and burning your body in the garden, if that’s what they choose to do.

We don’t mean to sound bleak, but the point is, there are no restrictions or limits and your loved ones are only bound by your word and their promise, so if you want the money to be used for a specific purpose, make sure you get everything in writing lest they forget.

How Much is the Death Benefit?

Final expense life insurance typically pays around $20,000 and is always less than $50,000. It’s a small sum when compared to many term-life insurance policies, but that’s because it serves a specific purpose and is not designed to clear mortgages or cover one or more family members for the rest of their life.

Is There a Medical Exam?

Because the payout is less than $50,000, a medical exam is rarely required. You will be asked some basic health questions and you need to be honest during this process, but in most cases, you will not be required to undergo a medical exam.