Traditionally, insurance companies offering final expense life insurance policies tend to target people aged 50-plus who watch daytime TV. (That's one reason why they often get a bad rap.) You will often find their product endorsed by a celebrity from years-past, one that is themselves a prospective policy buyer. They can make this type of insurance sound very appealing, but opinions differ on whether or not it’s the right buying decision for you.
In this article, we answer the most frequently asked questions about final expense life insurance to help you decide whether it makes sense for you to buy it:
- What is final expense life insurance?
- What does final expense life insurance cover?
- How much does final expense life insurance cost?
- Is final expense life insurance worth it?
Read on to learn more.
Final expense insurance, sometimes called burial insurance, is a type of life insurance. If you own a final expense life insurance policy and you pass away, the person you name as your beneficiary will receive the amount of money specified in the policy.
Final expense insurance is a marketing term that life insurance companies use in tandem with their advertising that some people feel exaggerates the cost of a funeral and the final expenses associated with it. However, few people would argue with the premise that funeral costs average between $7,000 and $10,000 in North America.
Final expense insurance is usually a type of life insurance called whole life. Whole life is a type of life insurance policy that will remain in force for your entire life as long as you pay the required premiums or to the policy maturity date (which is normally age 100).
Other types of life insurance can be used to pay final expenses, such as term insurance or universal life insurance; you don’t have to have whole life insurance to pay for final expenses. Insurance companies have selected whole life insurance because, statistically speaking, it’s very unlikely that you’ll outlive a whole life policy.
There are several benefits to having a whole life policy as the type of insurance for final expense insurance:
- The death benefit is guaranteed as long as you pay premiums
- The death benefit isn’t taxable
- The policy accumulates cash value that can be borrowed
- Your death benefit can’t be reduced unless you borrow against the policy’s cash value
- On many whole life policies, the premium will never increase
- The policy won’t expire upon reaching a specified age
If you decide to apply for a final expense policy, the insurance company won’t require you to take a physical or access your medical records. However, you will have to answer questions about your health history.
Most people that apply for a final expense policy want to have money to pay for expenses related to the type of burial or cremation they desire, which can include:
- Funeral directors services
- Funeral home fee
- Memorial service costs
- Burial plot
- Burial vault
While it’s nice to have a check in hand to pay for these expenses, the beneficiary of the policy can spend the death benefit in any manner they choose. They are free to use it to pay credit cards off, make a donation to charity in the name of the deceased, or take a vacation — anything they’d like.
Some people will buy final expense insurance with no intention to use it to pay for final expenses. They already have life insurance in force and had that earmarked for final expenses. Their reason for buying final expense insurance is simply to provide additional insurance for their loved ones.
Life insurance costs rise as our age rises, and as our age rises, often our health declines. Coupled with the fact that no medical exam is required for final expense insurance, the cost is much higher than other types of life insurance for those that purchase it.
For example, a 60-year-old male can purchase a $25,000 guaranteed issue whole life insurance policy for about $170 per month. That same male could buy a 10-year level term insurance policy with a $250,000 face amount for about $80 per month. He would get ten times the coverage for roughly half the price.
While that example makes term insurance look appealing, keep in mind that the term insurance will expire when the insured turns age 70. At that point, the term insurance cost would be substantially higher, and the insured would possibly have to prove evidence of insurability when applying for a new policy.
To answer this question, several other questions must be asked first:
- How much life insurance do you currently have?
- Is the benefit amount large enough to pay off your mortgage?
- Can you afford additional life insurance premiums?
- Do you feel you need a larger death benefit for your beneficiary?
- What is your health history?
- Are you insurable if you were required to provide medical records?
If answering these questions made you feel uneasy about the amount of life insurance you have and how much you’d leave to your survivors, you should at least consider final expense insurance. It could provide you with greater peace of mind about the financial condition your loved ones would experience when you die.
If you already have enough life insurance in force and you could pay off all the debt you desire to, plus have enough to pay for your final expenses and leave the amount of money for your beneficiary that you’d like, then you probably don’t need final expense insurance.
We buy life insurance because we need to, not because we want to. Examine your needs, and if you’re interested, you’ll find a good number of reputable life insurance companies that will give you a quote on a smaller face amount policy, $50,000 or less, that can supplement the life insurance you have or serve as your primary coverage for final expenses. It will be worth it if it meets your needs and your beneficiary, and you can afford it.
Jack Wolstenholm is the head of content at Breeze.
The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.