Final expense insurance is different from other insurance policies. It helps families pay for the costs of a loved one's funeral. In short, final expense refers to the money you need to cremate your loved one.

Research shows end-of-life costs can be $7,500 or more, depending on where you live. So, to help pay for some of these costs, many look into final expense insurance, a small whole life insurance policy designed to cover funeral and burial costs, besides other relevant expenses like medical and legal bills.

But what exactly is final expense insurance, and how does it work? Is it the best choice for you? Let's have a deeper look into the insurance policy to answer it all.

What Is Final Expense Insurance?

Final expense insurance, also called burial insurance or funeral expense insurance, is a type of life insurance that helps your family with the costs associated with your passing. The main purpose is to provide funds to cover funeral or end-of-life expenses like a burial or cremation.

This insurance gives loved ones money to help with funeral costs after you are gone. As long as you make your monthly payments, the insurance company will pay out a set benefit amount no matter when you die. Typically, the payout is around $10,000 or less.

While marketed for funeral costs, your family has flexibility in how they use the funds. They could go towards big medical bills from an illness, debts, or other final financial responsibilities.

The best part is that the monthly premiums tend to be very affordable. Even for older policyholders between 50 and 85, the costs remain quite low. For example, a woman in her 50s may pay around $25 each month. Meanwhile, a man in his 80s would likely pay about $190 monthly for a $10,000 policy.

How Does Final Expense Insurance Work?

Here's how final expense insurance works:

• Application Process: When you apply for a final expense policy, the insurance company will ask you some questions about your health. You won't need to take a medical exam or share your medical records, but if you have serious ongoing health problems, you might not qualify for a standard policy.

• Modified Policies: If you have health issues that prevent you from getting regular coverage, some companies offer modified policies. These policies usually have a waiting period of 2-3 years before they pay the full benefit amount. If you pass away during the waiting period, your family might only receive back the premiums you paid or a portion of the benefit.

• Monthly Premiums: You'll need to make monthly payments for as long as you have the policy. The premiums are usually affordable, but it's important to make sure you can keep up with the payments, even during difficult times. If you stop paying, your policy will lapse.

• Cash Value: Final expense insurance is a type of whole life insurance, which means it has a cash value that builds up over time. If you need money in an emergency, you can take a loan from the cash value or surrender the policy for cash.

How Much Does Final Expense Insurance Cost?

Most policies cost between $30-$70 each month. The exact price depends on factors like your age, gender, health conditions, and the amount of coverage you choose.

Typically, the older you are, especially over 70, the higher the rates tend to be - probably $70-$120 monthly. However, younger people in decent health could qualify for monthly premiums as low as $30.

Some companies advertise even lower prices. For example, AIG promises rates starting around $21 monthly for $5,000 coverage. Colonial Penn says as low as $10 a month. But the actual cost for you could be significantly higher. So, the best way to know for sure is to get customized quotes from different insurers.

But whatever insurer you choose, do keep in mind that a lower price may also mean your family gets fewer benefits after you pass away. So, paying a few dollars more each month could make a big difference in the support they receive.

Also, the sooner in life you sign up, the less expensive it is. Still, a traditional life insurance policy might just be a better deal for you after a medical checkup if you're young and healthy.

What Benefits Does Final Expense Insurance Offer?

Final expense insurance can be a valuable addition to your financial plan because of the following benefits:

Affordable Premiums

Final expense insurance typically has lower premiums than other life insurance policies. Since the death benefit is smaller, the cost of the monthly premium is generally more manageable, especially for older adults.

No Medical Exam Required

Unlike regular life insurance policies, final expense insurance does not require a full medical examination. You'll only need to answer a few basic health questions when applying. Just be sure to answer them honestly to avoid the future complications your family might face.

Locked-in Premiums

Once your final expense insurance policy is approved, the premiums are fixed and will never increase as long as the policy remains active. This gives you financial predictability.

Non-Cancellable Policy

So long as you continue paying the premiums, you can enjoy the final expense policy without worrying about it ever getting canceled by the company. And that is effective for any change in situations, even when your health deteriorates with time. However, you always have the option of canceling the policy yourself. If you stop paying the premiums, the policy will lapse and the coverage will end.

Flexible Use of Death Benefit

The death benefit payout from a final expense policy can be used by your beneficiaries to cover various expenses, such as funeral costs, outstanding medical bills, or even everyday living expenses.

Available to Older Applicants

Many insurance providers offer final expense policies to senior citizens up to age 80 or 85, making it accessible for those who may not qualify for traditional life insurance.

Simplified Application Process

Getting a final expense insurance policy is typically quick and straightforward. You can often buy one for yourself online or over the phone.

What Are the Drawbacks?

While final expense insurance can help cover end-of-life costs, it does have some potential downsides you should be aware of:

• Limited Coverage: These policies typically provide a smaller payout, usually between $2,000 to $35,000. So, if you need a larger sum for things like paying off debts or leaving an inheritance, final expense insurance likely isn't worth it.

• Waiting Periods: Depending on the insurance company, your policy might have a waiting period before the full benefits take effect. For example, if there's a 2-year waiting period, your family must wait two years before being paid the insurance money. If the policyholder dies before the waiting period ends, the beneficiaries usually get the premiums paid back with interest instead of the full death benefit.

• Overpay: Since there's no medical exam required, insurance companies take on more risk. To cover that up, premiums often tend to be higher than they should be. So, if you're younger and healthy, getting traditional insurance through medical exams might make more sense.

• Investment Valuation: Instead of paying premiums for final expense insurance over the years, you might be better off simply setting that money aside and letting it grow. By the time you need it for your final expenses, you could have saved more than a small insurance payout.

Who Should Get Final Expense Insurance?

While it's often associated with seniors, final expense insurance makes sense for anyone who wants to ensure their loved ones aren't burdened with these costs.

Here are some situations where final expense insurance might be a good fit:

• Seniors with Health Concerns: If you're a senior with health issues, you might find it difficult to qualify for traditional life insurance policies. But final expense insurance is often easier to get approved for, as it typically doesn't require a medical exam.

• People with Chronic Illnesses: Similarly, if your chronic illness or a specific health condition makes it difficult to secure traditional life insurance, final expense insurance can be your best option to get through.

• Anyone Worried about Burdening Their Loved Ones: No matter your age or health, if you want to make sure your family isn't left with unexpected financial burdens after your passing, this policy can provide peace of mind.

Is It Necessary?

As mentioned at the beginning, funeral costs, outstanding medical bills, and other similar expenses can quickly add up. And that lump sum payment your beneficiaries receive from this policy can indeed help cover those expenses.

Yet, if you have a large estate or a significant amount of life insurance, you might already have enough coverage to cover your final expenses. In that case, final expense insurance might not be necessary.

Frequently Asked Questions

When should I get a final expense insurance policy?

There's no perfect age to get final expense insurance, but the general rule is - the sooner, the better it'll be on your wallet. These policies are designed with seniors in mind, so you can apply once you reach 45 years old to all the way up to 85. Yet, if you're in your late 40s or 50s, you may want to look into other options first.

What are considered to be final expenses?

When you hear "final expenses," paying for the funeral is probably the first thing that comes to mind. And indeed, funeral costs like the casket, burial plot, ceremony fees, and so on are a huge part of it. But it'll also help you pay outstanding medical bills from a hospital stay, debts, or long-term care that haven't been fully paid yet.

What happens if I pass away prematurely?

Now, one thing to remember with these final expense policies is that some companies have a "limited benefit period." Basically, if you were to unfortunately die within the first couple of years after taking out the policy, your loved ones might not get the full benefit payout. So, read the terms carefully before applying.

When do final expense insurance policies pay out the money?

It depends on which insurance company you have the policy through. With certain companies, your loved ones could be waiting weeks, months, or even a couple of years before for the payout. But a few others might complete the payout as quickly as 24 hours of your passing away.

Conclusion

As you can see, final expense insurance is an easy-to-budget way to make sure your loved ones have money to cover costs after you're gone.

It might not be as fancy as other life insurance, but it's easier to apply for even if you're not in perfect health. This is especially helpful for older adults on a fixed income who want a basic plan to pay for funerals and other final expenses.

Just be sure to read the terms and conditions carefully so you know exactly what's covered and if it fits your needs.