What is Final Expense Insurance?
What is Final Expense Insurance?
Final expense insurance is an insurance policy that provides cash to cover end of life expenses such as funeral and burial costs. They are typically smaller face values (the amount of payout money). In addition, insurance companies often structure them as whole life policies.
Introduction
My father-in-law passed away one year ago. (One year and one day from the day that I am writing this article.) His passing was my first experience in how important Final Expense Insurance is. It made everyone’s lives easier that he had a policy in place to cover end of life expenses.
Up until about 2 years ago, my father-in-law had a larger term policy on himself and his wife. However, they decided to cancel that policy since they were set financially for retirement. Fortunately, he had a good agent that set him up with a smaller Final Expense policy.
Now, my in-laws did have enough in savings to cover a funeral. However, it was just so much easier not to have to worry about how to get access to that cash. Their savings sat invested in mutual funds and stocks, which take a few extra steps to get to. Consequently, no one wanted to go through any more extra steps to get to it.
The insurance money was easy enough. We did have to wait for the hospital to file a coroner’s report before we could get the money. However, in the meantime, we “assigned” the insurance money to the funeral home and burial services before we had it. The whole experience was positive and the final expense money was helpful.
What is Final Expense Life Insurance?
Final expense policies are life insurance policies. Just like other types of life insurance, a final expense policy issued by an insurance company pays money to a designated beneficiary when the insured person dies.
Final Expense policies are whole life policies. Since whole life premiums are usually more expensive than term premiums, the face value is usually a smaller amount. The purpose of these policies is to pay for end-of-life expenses such as funeral costs, burial fees, and even medical bills. Of course, you can use the money for anything. It is just a cash payout.
The Benefits of a Whole Life Policy
As noted, a final expense policy is usually a whole life policy. This means a few things:
- Your policy will have a cash value in addition to a face value. A cash value in an insurance policy is an amount of money you have access to for loans while the policy is active (in force). (The face value is the amount of money your beneficiary receives when you die.)
- The cash value grows on a tax-deferred basis.
- Your final expense policy will have level premiums. (The premiums will be guaranteed not to go up as you age.)
How Much Final Expense Insurance Do I Need?
When you are deciding how much cash you need consider funeral costs, burial costs, end-of-life medical bills, and any other loose ends. According to Mutual of Omaha, an average funeral costs about $7,000 to $10,000. Most people don’t have access to that sum in cash. Even those that do, might have other things they want to do with that cash.
Every insurance company prices premiums differently. Additionally, they all offer different face value amounts (i.e. the amount of money your beneficiary receives when you die). However, the usual amounts are anywhere from $2,000 to $40,000.
Can I Use My Policy for Long-Term Care (LTC) Costs?
Additionally, some Final Expense policies have accelerated death benefits for terminal illness or nursing home confinement. This means you can use the face value of the policy as cash to pay for these expenses. However, if your policy is only for $10,000, this will not get you far!
If you are looking to use insurance to cover long-term care (LTC) costs, a final expense policy is not the tool to use. Final Expense policies usually do not have a big enough face value, or accrue cash fast enough, to fund LTC. Look at funding an Indexed Universal Life (IUL) with a LTC/Critical Care Rider to help with this.
Additionally, you can get a Long Term Care Insurance Policy.
Is Final Expense Life Insurance for Me?
To start, insurance companies created final expense policies for older adults (typically 45 years old +). If you are younger and reading this article, there are better options for you at this time in your life. Head over to our IUL page to learn about Indexed Universal Life, or think about term insurance.
As you get older, term insurance and other higher face value whole life policies get more expensive. In addition, insurance takes on a different importance as your debts dwindle and your savings rise. You can read more about insurance needs as you age in our article “Life Insurance in Retirement?”
Final Expense Life Insurance is a great solution for older adults that need to take care of their loved ones by leaving cash to cover their end of life expenses.
How Do I Get a Policy?
If you are ready to get a final expense policy, it is time to talk to an agent. She or he can help you in creating a solution that meets all your needs. Different companies have different options and riders, so it is a good idea to work with an expert to set your’s up right. It does not cost you anything extra.
- If you live in Nebraska or Iowa. You can give me (your writer, Carly Cummings) a call or email by clicking here.
- If you live anywhere else in the U.S., I still like you, but I am not licensed to work with you. Please give one of our directory agents a call who live in your area.
Carly Cummings is a licensed insurance agent and former financial adviser. Carly is the Creator of MedicareLifeHealth.com where she helps her readers (of all ages) find the best health care and create the best cash flow in retirement. Carly has worked in finance and insurance for a Fortune 500 company as well as for a Berkshire Hathaway company. Before finance, she was an entrepreneur that owned a wellness licensing company and two yoga studios.
