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Grief, mourning, and an overwhelming sense of loss are just some of the emotions your loved ones may experience after your passing. They may also face the oppressive burden of funeral expenses, medical bills, and remaining debts. Fortunately, final expense life insurance helps to protect your family from costly and unexpected financial responsibilities, so they can focus on healing and honoring your final wishes. Read on to learn how you can continue to provide for your family’s financial well-being with final expense insurance.
Final expense insurance is a type of whole life insurance intended to provide coverage for end-of-life expenses. Because final expense insurance is often used to cover the cost of funerals, burials, and cremations, it is also commonly referred to as burial insurance or funeral insurance.
Whatever its name, though, one thing is certain: Final expense serves as a reminder of your love and desire to care for and protect your family.
Policies can be custom-tailored to fit your budget, with affordable options available for people of all ages and health conditions. Burial insurance serves as a viable life insurance option for those desiring a little more coverage or those who have not been able to purchase a life insurance policy due to affordability, age, or pre-existing conditions.
Final expense insurance is a form of whole, or permanent, life insurance. As with whole life, coverage provided by a final expense insurance policy will never expire regardless of how long you live, with premiums and benefits remaining level for the duration of the policy. As you pay your premiums, your policy builds a “cash value,” which can be used as a loan, to pay your premiums, or to purchase a paid-up policy.
The cost of traditional life insurance policies tends to scale with your age and health. If you wait too long to buy a whole or term life policy, you may find it unaffordable—if you can even medically-qualify at all—leaving you without life insurance coverage. Final expense insurance fills this gap and is intended for pre-retirees over age 50 who either don’t have life insurance coverage or see the need for additional coverage. As a result, funeral insurance and burial policies are made to be affordable, and guaranteed options are available for people of all health conditions, including those with pre-existing conditions.
Final expenses include more than just the cost of honoring your final wishes. The proceeds of a burial insurance policy can be used for anything, including the cost of your last wishes, remaining debts, and medical bills, or as a final gift for your loved ones. By putting a plan into place with a sufficient amount of coverage, you can help protect your family from worrying about finances so they can focus on mourning, healing, and celebrating your life.
The amount of final expense coverage you need depends on your finances, such as your savings and any existing insurance coverage, as well as your preferred final wishes. When considering how large a policy you need, remember: Every dollar provided by funeral insurance is one less dollar your loved ones need to worry about as they cope with sadness and loss and helps to offset any immediate financial difficulties they’re left facing.
On average, the cost of a viewing and funeral was $8,755 in 2017.2 In comparison, a viewing and cremation cost $6,260.2 The time leading up to your passing may also contribute to end-of-life expenses in the form of medical bills, travel costs, and debt, potentially totaling between thousands and tens of thousands in added costs3—costs that must be paid by your family if you don’t have some form of life insurance (or significant savings).
Your policy’s death benefits, or face value, may also be used for other reasons such as establishing a college fund for your grandchildren or sending your loved ones on a much-needed vacation in your memory.
When determining how much coverage you need, make a list of your final wishes and other end-of-life plans. Then, purchase a final expense policy that meets both your needs and your budget and continues to provide for those who matter most to you.
The proceeds of a final expense life insurance policy are disbursed to a person or persons of your choice, called your beneficiaries. Your policy’s beneficiary should be someone whom you trust to carry out and honor your final wishes and plans.
Burial insurance benefits can be divided up in any way you see fit. You may choose to make a family member the sole beneficiary or assign a specific percentage or defined amount of the death benefits to a handful of recipients.
You may also wish to name your chosen funeral home as a total or partial beneficiary, effectively pre-paying for your funeral. Assigning a burial insurance policy to a funeral home is often the better option compared to purchasing a pre-paid funeral from a specific funeral home because you are free to change your insurance policy’s beneficiaries at any time. This flexibility gives you protection against funeral homes that go out of business or lose their good reputation.
The proceeds, or death benefits, of a funeral insurance plan are disbursed tax-free to your named beneficiary or beneficiaries,4 providing a means to care for your family when they need it most, without further complicating their financial situation.
If your beneficiary does not immediately collect the benefits upon disbursement, however, any generated interest may be subject to taxation. Similarly, life insurance proceeds paid to your estate in lieu of a beneficiary may be subject to taxation.
Typical life insurance policies require applicants to undergo a process called underwriting. As part of the underwriting process, you may be subject to a medical exam designed to assess your general health to determine your eligibility for coverage. The presence of pre-existing conditions may increase the premiums of a policy to offset the insurer’s risk of insuring you, while other medical conditions may outright disqualify you from purchasing a policy.
For these reasons, it is generally recommended to purchase a typical life insurance policy when you are young and in good health.
In contrast, final expense life insurance is often considered a type of “guaranteed” life insurance intended for those who are older and likely less healthy than they once were. Final expense plans are available to individuals of any age and health conditions, including those with pre-existing conditions.
Burial insurance doesn’t require a medical exam to qualify. Instead, you will be asked a few simple questions about your medical conditions and history to determine the type of final expense insurance for which you are eligible—a process called “simplified underwriting.”
Insurance companies offer two types of burial insurance plans: level or graded plans. The truthful answers you provide to the medical questions asked during simplified underwriting determine for which of the two plans you qualify.
The difference between level and graded plans is how and when your full death benefits pay out.
Applicants with good health generally qualify for a level benefit plan. Level final expense insurance policies provide full coverage as soon as the policy is issued. For example, if an individual’s policy is issued and comes into force on November 1 and they happen to pass away on November 2, their beneficiary will be able to collect the full amount of the policy’s face value (provided the insured individual provided accurate information in their application).
Individuals with poorer health are typically given a graded benefit plan. With graded final expense insurance, death benefits are not paid out in full if the covered individual passes away from natural causes within the first two years of the policy coming into force. (Some graded benefit policies may pay out the full face value if an individual passes away in an accident, even if it takes place within the first two years of the policy’s issue date.)
With some graded benefit plans, a portion of the benefits will be paid out if you pass away within the first two years of the policy’s issuance. Other types of graded benefit plans may refund all the premiums you have paid to date plus an added percentage.
Full death benefits begin to be provided once the policy has been in force for at least three years.
Final expense insurance typically provides other benefits beyond the policy’s face value. These additional benefits are called riders and may be provided as a standard or optional inclusion depending on the insurer and specific type of policy.
Common riders include the following:
Accelerated death benefit riders, which pay out a policy’s death benefit before death, such as in the case of a chronic or terminal illness diagnosis or confinement to a nursing home.
Accidental death benefit riders, which double the death benefit paid out if you pass away as the result of an accident or incident unrelated to an illness or medical condition.
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