Final Expense Insurance

What Is Final Expense Insurance?

Final expense insurance, also known as burial or cremation insurance, is a type of life insurance policy that pays out a benefit upon the policyholder's death. The purpose of final expense insurance is to help cover the costs associated with death, such as funeral expenses, estate taxes, and other related costs. 

The need for final expense insurance arises when someone doesn't have enough saved up to cover their end-of-life costs. In many cases, people don't think about funeral expenses until it's too late. Final expense policies are designed to provide a benefit in case of death so that loved ones don't have to bear the burden of those costs. 

Final expense policies can be purchased by anyone, but they are most commonly purchased by seniors who are nearing retirement age and want to ensure their loved ones are taken care of after they're gone. 

Final expense life insurance is a whole-life insurance plan that had a little death benefit and was favored by insurance providers. Terms such as funeral insurance, burial insurance, simplified-issue term life insurance, or modified term life insurance may also refer to final expense life insurance. Insurance companies use different marketing terms to sell whole life policies that have a face value of $2,000 to $50,000.

The only difference between guaranteed premium insurance and regular life insurance is the fact that insurers sell smaller policies to make them more affordable. Richard Sabo, a financial planner and insurance fraud expert in Gibsonia, PA, makes this observation. This insurance has a death benefit designed to cover final expenses such as expenses related to a funeral or memorial service, embalming, and a casket, or cremation. However, beneficiaries can use the death benefit for any real purpose.

How Does Final Expense Insurance Work?

You re retired, no longer have group life insurance through your employer, and have no individual life insurance, either. You also don t have a nest egg and are worried about leaving your spouse and/or children behind financially when you die.

You contact a life insurance agent to begin the process of applying for coverage, which entails answering a few straightforward questions about your health. The plan's death benefit is excellent, but it's too expensive due to the high costs of your age and health. Unfortunately, life insurance policies that offer a death benefit that is too small to make premiums affordable are not readily available. At this point, you might decide to quit and assume that it's expensive to obtain life insurance.\

Final expense life insurance coverage has been developed to deal with this issue. Final expense insurance companies developed these plans in order to avoid the risks of serious locations, according to Anthony Martin, CEO of Choice Mutual, a final expense life insurance coverage brokerage company. As a result, many seniors are usually able to obtain such a policy, regardless of more severe health circumstances.

Smaller Death Benefits

The lower annual cost of a final expense insurance policy makes the premiums less costly, as stipulated by Sabo in the passage above. Unless you die, your heirs will receive the death benefit you want them to have. 

It does not cover everything, such as paying off a large mortgage, but final expense insurance will help your family with making the monthly payments they struggle to make without your income, or the bills that your family will have trouble with paying following your death. 

Pros

• Policies are available to people with health problems. 
• The application process doesn't need a medical examination; it comprises only a questionnaire and prescription history at most. 
• On many types of policies premiums don't change (this applies to many types of life insurance).
• The insurer cannot decrease the death benefit of your policy if you borrow against the cash value of the policy or request accelerated grants of benefits. 
• Your beneficiaries can use the death benefit for any purpose (a feature of life insurance).
• If you're paying premiums and don't have a term policy, the death benefit is guaranteed as long as premiums are paid. 
• You don't have to worry about how the death benefit will be taxed. 
• You can purchase a policy with a death benefit of no more than $50,000 (or even less for some individuals), so that's all you'll need or can afford.

Cons

• Many insurers distort the truth on their marketing material, making it unsuitable for potential buyers.
• Some insurance companies provide incomplete information about these policies in their marketing materials (this is also true of other life insurance procedures).
• Since these policies have a relatively low death benefit, you could lose money if you live a long time and pay more in premiums than the beneficiaries will get as a death benefit. In addition, you also lose money when you pay cash value premiums and don't die while the policy is in force.
• Some final expense insurance companies try to sell their services using high prices to seniors as a means of manipulating them into thinking they cannot afford to send their relative to be buried.
• Some insurance companies may steer patients with no major health conditions toward more-restrictive and expensive policies even though they can qualify for better coverage.
• Some forget to fill out a policy, which means their heirs won't be entitled to a death benefit (also true for other types of life insurance).

Understanding Final Expense Insurance

Like other forms of life insurance, the premiums for final expense insurance are determined by your age and health; where permissible by state regulation, they may also depend on your gender. The older and less healthy you are, the higher the rates for a given amount of insurance will be for men versus women. And, depending on your insurance company, you will qualify for a lower rate if you do not use tobacco.

Some insurance providers supply final expenses to people from birth to the age of 85. However, their policy might specify a minimum age (such as 45) and maximum age (such as 85) for applying. When you pick the largest death benefit, it will be smaller as you get older. Policies may cover as much as $50,000 if you are younger than 55, but may only go up to $25,000 once you reach 76 years old. Some insurers offer the same maximum death benefit regardless of age.

In a nutshell, final expense insurance is a form of permanent life insurance that is fairly easy to understand. Whole life insurance is quite easy to understand as far as term life insurance goes. Once you have your policy, the premiums will remain unchanged, and your death benefit cannot decrease. Unlike the term policy, a whole life policy does not expire once you reach a certain age. A whole life policy also accumulates cash value that you can borrow against, though any loans you've made against that cash value at the time of your death will reduce how much your beneficiaries will receive.

Should you choose to apply for final expense insurance, you will not have to undergo a medical exam or allow the insurance company to access your medical records. However, you will need to answer questions about your health. Due to the health questions, not everyone will qualify for a refund that offers coverage from day one.

Guaranteed Issue: A Special Type of Final Expense Insurance

Applicants who satisfy our certain health condition prerequisites will only be eligible for a guaranteed issue plan in which medical and dental records aren't required, a medical exam isn't required, and coverage may not begin for a two- to three-year waiting period.

If the insured dies during the waiting period, his beneficiaries will not receive the death benefit. Life insurers usually pay the premiums plus interest to a policyholder's beneficiaries every year. For further details on guaranteed issue life insurance, read through our article. 

If the insured dies as a result of the waiting period, the beneficiaries will not get the death benefit for this policy. Life insurers usually pay the premiums plus interest to a policyholder's beneficiaries every year. For further details on guaranteed issue life insurance, read through our article.

Real-Life Example of Final Expense Insurance

After comparing costs using the Choice Mutual quote tool, we found that for a 68-year-old man in California, a $25,000 final expense insurance policy with health questions and immediate coverage can cost $156 to $180 per month, while one with a guaranteed issue policy (with a waiting period) can cost $234 to $345 per month. Let us say that man has just congestive heart failure and qualifies for a guaranteed policy with a two-year waiting period. If he takes up the most expensive policy with the $345 monthly premium, after two years he'll have paid $8,280 in premiums. The beneficiaries will come out ahead in the event of his death between the first day of year three and the end of the year 6. When the quarterly premiums paid will equal the death benefit, they'll be paid.

An individual who is healthy should choose a company that does not only sell guaranteed issue policies, as the consumer will incur a higher cost and coverage will not begin on day one. They may not wish to pay for out-of-pocket medical expenses, depending on the Sabo chap. There's a caveat, however: you need to be in good health to qualify. Sabo mentions that a 68-year-old non-smoking male from California could acquire a $25,000 guaranteed universal life insurance policy for $88 a month. This policy expires at age 100, so this policy provides less coverage than whole life insurance. Recognize your well-being and spending capacity before choosing whether to accept this trade off.

For guaranteed, lifelong protection, like whole life, your money is only going to be spent for the coverage if you pay for as long as you live. You can buy a guaranteed, lifelong policy that will cover you all the way to age 121 for maximum security, or up to age 100, or to a younger age if you wish to save money and don't need coverage after a certain age, say, age 90. It economizes more compared to final expense insurance because it does not have a cash value component.

When ‘Regular’ Life Insurance Is Better

So if you can afford to buy a larger policy to meet employer minimum advantages, then you are better off buying standard insurance coverage, says Sabo. Martin considers that most insurance carriers necessitate a minimum face value of $50,000 to $100,000 on traditional whole life or term life insurance. The higher face amounts can result in higher premiums than many individuals can manage, even though the cost per $1,000 of coverage is lower than a final expense policy. Many ofrue L.'s clients could qualify for a traditional whole or term policy if they choose a fixed price payment of $20,000 to $30,000 or claims are completed faster than those on larger policies.

Sabo says that many life insurance companies have increased their minimum death benefits to $50,000, although it is not worthwhile for them to perform the administrative tasks associated with an inexpensive policy.

In-Between Option: Graded Benefit Final Expense Insurance

There are 3 types of final expense insurance. The last is a graded benefit plan with a partial waiting period. This policy might pay anywhere from 30% to 40% of the death benefit during the first year the policy is in effect, and it can guarantee up to 70% of that amount if the candidate dies during the second year of the policy's noncancellable duration. If the insured dies after those first two years, then the death benefit of this policy can pay up to 100%.

Partial medical conditions that are non-serious might qualify you for a graded benefit policy instead of a guaranteed issue policy. Examples include remission from cancer during the past year, having congestive heart failure, or being treated for alcohol abuse over past 24 months. Whether you have a serious condition that requires treatment, such as cancer or a heart procedure, or you're currently being treated for an illness, among the top manufacturers on the market may only offer you guaranteed issue coverage where You must wait at least two years for your coverage.

No single insurer provides the complete final expense insurance, states Martin. It's most useful to get estimates from different firms to see which companies view your health most positively. These companies will offer you the least expensive rates. Attempting to qualify for a dental plan that has out-of-pocket expenses is also very effective at lowering rates.

If you have an answer to a health query that's not satisfactory, it does not mean every business will reject you. Some may provide you immediate coverage with higher prices, a graded benefit policy, or a guaranteed issue policy.

Ascertaining your initial budget, as discussed herein, often makes the most sense. Nevertheless, if you're working with an experienced life insurance coverage adviser who provides products from numerous insurance companies, rather than an agent who only sells from one provider's products, your insurance company's broker may aid you in choosing which provider is easiest to work with. Some companies offer greater service than others, as indicated by Martin. Notwithstanding that, some people will need to select the cheapest choice even if long-distance travel is an issue.