July 26, 2019

Final Expense Life Insurance

Read more about Life Insurance

Final expense insurance is meant for people who need coverage for funeral and other end-of-life expenses. But these policies come at a high price. Is it right for you?

If you're older and retired, have grown children and no debts, there is still one expense your family will have to face: your funeral. According to the National Funeral Directors Association, the average funeral costs between $7,000 and $10,000.

This doesn't include flowers, a cemetery plot, or headstone - and sometimes not even a viewing service. Final expense insurance can help with these—and other—costs.

Keep reading to learn the details.

What Is Final Expense Life Insurance?

Final expense insurance commonly used to cover funeral and other end-of-life expenses, including:

  • Medical bills
  • Services like viewings, cremation, or burial
  • Caskets or urns
  • Other funeral costs

With Final Expense Life Insurance, your death benefit can be used for anything:
  • Other debts
  • Estate taxes
  • Caring for a surviving spouse
  • Inheritance for beneficiaries

It's a form of permanent life insurance, meaning you have the insurance coverage for as long as you keep paying the monthly premiums. The policy will remain in effect until you die and your beneficiaries will receive the death benefit.

Most insurance coverages require lots of health questions and sometimes a medical exam. With final expense insurance, most applicants are approved after just a few basic questions (more on that later).

Is it the right life insurance coverage for you? Read on.

What Are the Pros and Cons?

Pros

  • Flexible Death Benefit
    Your beneficiary can use the dollars for their own mortgage, college expenses, debts, or other day-to-day costs.

  • Funeral Home or Service can be Beneficiaries
    Taking care of these plans and expenses prior to your death can lessen the burden for your family after you die.

  • Fixed Premiums
    Your costs won't increase over time.

Cons

  • Low Death Benefit
    Coverage averages around $5,000–$25,000.

  • Higher Monthly Premiums
    In some cases, premiums paid can end up being greater than the face value of the policy.

If you don't need immediate coverage, or you can be approved for a traditional life insurance policy, setting dollars aside or opting for a different policy may be better for your needs.

Keep reading to learn about your final expense insurance options.

Types of Final Expense Insurance

Guaranteed Issue Life Insurance
Guaranteed issue life Insurance is, as the name states, guaranteed. There are no medical exams and minimal questions since the coverage was designed for the elderly or those with serious health conditions.

The premiums are significantly more expensive (between $50 and $620 per month depending on your age), and death benefits are generally pretty low (maximum around $10,000–$20,000).

But this coverage has no term limits or expiration dates—you have the policy for as long as you pay for it.

Like most other policies, there is a two-year hold period before you can collect the death benefit. This protects the insurance company in case you weren't honest on your application (since there is no health exam to confirm your answers.)

If you die within that two-year hold period, your beneficiary will not get the death benefit.

Simplified Issue Life Insurance
This coverage does not require you to take a medical exam. But underwriters will ask more thorough questions and have access to your medical records. Depending on your answers (and your medical records), you could be denied coverage.

While Simplified Issue is typically less expensive, it costs more than medically underwritten policies.

When you submit your application, the underwriter will determine your risk. They may need more information, like medical records from your doctor. Otherwise, you are typically approved for the coverage and the policy goes into effect.

If records are requested, it may take longer to be approved. The underwriter will analyze the risk and determine the coverage amount they will offer you based on what they receive from your doctor.

Features of a Final Expense Policy

  • There is no medical exam required. Even if you have an illness or are elderly, you are more likely to be approved.

  • You can get $2,500–$100,000 in coverage. That should be sufficient for covering medical expenses and funeral costs when you die.

  • Underwriting is quick. You are likely to be approved and have coverage within 48 hours.

  • Premiums are fixed. They do not go up as your age increases or health deteriorates.

  • Beneficiaries can use the proceeds for any purpose. But because the death benefit is smaller than other types of insurance policies, it's generally designated for end-of-life expenses.

    Some policyholders name a particular funeral home as a beneficiary. Then the funeral home is automatically paid for funeral expenses and the family doesn't have to worry about it.

Should I Get Final Expense Insurance?

Final expense insurance can be the right choice under some circumstances. But higher premiums and a lower death benefit may make other insurance policies more attractive.

Consider final expense insurance if you:

  • Are age 50+ with a health condition that affects your ability to be approved for a traditional policy (cancer, diabetes, or COPD)

  • Are looking for a small policy to be used for funeral arrangements and any medical bills incurred before death

  • Don't have children or other dependents

  • Have paid off your debts

  • Have enough savings to last through your retirement

If you aren't sure if Final Expense Insurance is right for you, talking to a life insurance agent or financial advisor may be helpful.

What Are the Alternatives?

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Other life insurance alternatives can be used to pay for end-of-life costs, as well as provide a death benefit for beneficiaries.

Term Life Insurance

This is the most popular type of policy, largely because it costs less than other types of life insurance. It's temporary, but it provides coverage for years in your life when you need it most.

Your beneficiary receives the full death benefit if you die within the years of the term. The most common terms are 10, 20 and 30 years. Some companies also offer 5-, 15-, and 25-year options.

There is a two-year hold on the death benefit with term life insurance policies. That means if you die before that two-year period is up, your beneficiaries will not receive the payout.

Consider a term policy if you:

  • Are younger than 55 and relatively healthy

  • Need life insurance for a certain time of your life, like while you are raising children or have outstanding debts (specifically a mortgage)

  • Aren't concerned about the two-year hold period on the death benefit

  • Don't mind taking the medical exam or an in-depth health interview

  • Can wait several weeks for approval.

A 5 or 10 year term policy may be a good option for funeral expenses. It's more affordable than final expense insurance and the death benefit can be much higher for a lower cost.

But if you are older (55+) or in poor health, you are less likely to be approved for this policy. Or, if you are approved, you will have a much higher premium.

Pre-Need Insurance

Pre-need insurance, sometimes called pre-need funeral insurance or pre-need burial insurance, is a form of permanent life insurance offered by funeral homes and funeral directors.

This is a very specific type of final expense insurance that is essentially a pre-paid funeral. It covers the expenses of a predetermined funeral service. Here's how it works:

  1. You work directly with a funeral home or director to pre-plan your funeral.

  2. You decide the type of service, casket, cemetery plot, etc., that you want.

  3. You purchase the insurance coverage you need to cover those costs.

A downside to planning so far in advance is that a lot can change over time. The funeral home may switch ownership or your financial situation could change. Your premium costs might be more valuable if used for other purposes.

Here are some benefits to using pre-need insurance:

  • You can plan your funeral ahead of time and select the exact services you want.

  • You'll know what it costs and how you are going to pay for it.

  • Your family won't have to worry about planning your funeral after you die.

Pre-Need Funeral Trust

Pre-need funeral trusts can be designated specifically for funeral expenses. However, instead of paying directly to the funeral home, the premiums are contributed to a trust that accrues interest over time.

This can be a more cost-effective option. Here are the details:

  • You pay the costs for the funeral in advance.

  • The funds you place in the trust remains your money.

  • The money is invested over time and accrues interest.

There are two main disadvantages to the pre-need funeral trust. First, the interest is usually taxable. More importantly, if you die before the account is paid in full, someone else will have to cover the remaining expenses.

Self-Funded Burial

If you are financially prepared for retirement, or have sufficient savings for a funeral, you probably do not need additional life insurance coverage.

Instead, you can talk to someone you trust or include a designation in your will and testament for a piece of your savings to go towards funeral expenses.

If you are generally in good health, you could invest or continue to put money in savings to pay for, or assist in paying for, your funeral.

Applying for Final Expense Insurance

Requirements may vary by state or company, so work with a life insurance agent or the insurance company to ensure you are prepared and have what you need to apply.

Some insurance companies will ask pre-qualifying questions. This is to protect them from taking on too much risk by insuring you.

Here are some questions you may be asked. Note that if you answer yes to any of these, you could be disqualified:

  • Are you currently in the hospital?

  • Are you currently in a nursing home?

  • Are you currently receiving hospice care?

  • Have you been advised by a medical professional that you have less than one year to live?

  • Are you older than 89 years old?

  • Have you tested positive for HIV or been diagnosed with AIDS?

  • Have you been diagnosed with Alzheimer's disease or dementia?

Where Can I Get Final Expense Insurance?

There are more than 800 life insurance companies operating in the U.S. Not all offer final expense insurance, but you still have hundreds of options. How do you decide which is right for you?

Here is a comparison chart of some of the top final expense life insurance companies:

CompanyIssue AgesLength of Hold PeriodCoverage Amounts
Assurity40-802 yearsUp to age 65
$5,000 - $50,000

Ages 66-80
$5,000 - $25,000
Foresters50+2 yearsAges 50-80
up to $35,000

Ages 85+
up to $15,000
Gerber Life50-802 years$5,000 - $25,000
Fidelity Life50-853 years$5,000 - $35,000
Mutual of Omaha45-852 years$2,000 - $45,000
Aetna45-892 years$3,000 - $35,000
AIG50-85110% premiums first two years; full payout in third$5,000 - $25,000

How to Compare Companies
  • Look at their financial ratings, like A.M. Best and Moody's, to see how financially stable the company is.

  • Check customer service ratings and reviews.

  • Determine how long it takes to pay out the death benefit.

  • Understand how easy the company is to work with and how responsive they are to questions.
  • Average Final Expense Rates

    We compared companies that offer final expense insurance. The charts below will give you an idea of average monthly premiums for a non-smoking male and female for the most common death benefit coverage amounts.

    Male Death Benefits Monthly Rates

    Age$5,000$10,000$15,000$20,000$25,000
    50$20.31$41.32$64.15$87.29$106.43
    55$28.43$55.93$86.47$109.95$138.46
    60$30.40$62.89$93.94$125.87$153.36
    65$42.04$80.16$119.28$161.45$208.51
    70$50.05$96.18$140.32$195.45$236.52
    75$70.42$129.52$200.81$275.12$337.42

    Female Death Benefits Monthly Rates

    Age$5,000$10,000$15,000$20,000$25,000
    50$15.69$33.45$51.39$65.02$83.24
    55$21.60$42.28$61.92$85.65$103.31
    60$25.98$50.03$75.10$98.20$125.27
    65$30.75$61.60$92.45$122.30$145.14
    70$37.23$75.76$110.85$149.15$184.46
    75$54.55$106.24$155.79$214.41$264.08
    80$86.64$175.38$254.10$345.86$429.53

    NOTE: Your personal quote rates will vary by your age, state, health status, and insurance company.

    Bottom Line

    Final expense policy death benefits vary and so do the monthly premiums. But even if you are older or have a chronic medical condition, you are likely to be approved for this policy. Approval could happen in as little as 48 hours.

    As always, you may find comfort in talking to a life insurance agent about your needs. They can help you determine if final expense coverage is right for you, how much of a benefit you need, and how to get a quote and apply for a policy.

    More from CreditDonkey:


    Life Insurance Beneficiary


    Guaranteed Life Insurance


    Best Life Insurance

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