What is Final Expense Insurance?

What is Final Expense Insurance?

Final expense insurance (also known as burial insurance or funeral 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 two years ago. 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 a few 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.

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 money. 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 delivered 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. For example, you could use them for 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:

  1. 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.)
  2. The cash value grows on a tax-deferred basis.
  3. 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 (opens in a new tab)” href=”https://www.mutualofomaha.com/advice/understand-how-life-insurance-works/whole-life-insurance-what-you-need-to-know” target=”_blank”>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.

Funeral Costs to Consider

Costs of Funerals will depend on your post life choices. For example, you could choose to be buried or cremated. Alternatively, you could choose something non-traditional such as body donation, which could cut down on end of life costs. Burial costs include caskets, as well as, the plot where you want to be buried.

Your funeral choices will also affect the cost of your burial costs. Funeral homes have vary price points, churches may also have donations or fees involved in their services. Many families also choose to have food provided. Food costs also vary significantly – from free potluck style options, to full catered events.

Here is a summary chart of the average costs for funerals in the United States. For more in depth coverage, please read our article “Average Funeral Costs for End of Life Planning.”

Average Funeral Costs Summary Chart

ServiceAverage Costs
Funeral + Burial$7,640
Cremation$5,150
Casket Rental$995
Cremation Casket$1,200
Cremation Container$150
Urn$200
Burial Plot$100’s – $10,000’s
Embalming$750
Casket$1,000 – $2,500
Viewing Facility Rental$425
Body Preparation$255
Hearse Rental$340
HeadstonesStart at $1,000
Source: NFDA 2019

Average Funeral Costs for End of Life Planning.”

Alternatives to Final Expense Insurance

You could get confused as you look into the different options available for retirement and end of life planning. For example, there is Long-Term Care Insurance, Prepaid Funeral or Burial Plans, and other forms of life insurance. What can you use for what? Let’s look at a few options and what they are useful for, including…

  1. Prepaid Plans
  2. Long Term Care Insurance
  3. Savings / Retirement Funds

1. Prepaid Funeral Plans

First, let’s look at prepaid plans. Prepaid plans are different from final expense insurance. These are contracts with specific funeral or burial providers that allow you to prepay for their products and services before you need them. In contrast, with a final expense policy…

Your insurance cash payout is not prepaying for any vendors or locations. It is just a lump sum paid to your family (or beneficiaries) for them to use as they wish.

You can use a prepay plan in addition to funding a life insurance plan, or as a stand-alone option. Many people like the freedom of their family being able to use the life insurance money as they wish. Most often, the circumstances and associated costs of your death are unpredictable. You can alleviate stress for your family by giving them flexibility in using your policy funds.

https://medicarelifehealth.com/funeral-insurance

2. Long Term Care Policies

Long Term Care Policies (LTC) are not life insurance policies, so they are not useful in paying for end of life costs. LTC is an insurance policy that helps you pay for assisted living and nursing care when you need it in a long-term capacity. However, these costs do not include what is needed after you pass.

On the other hand, people often ask…

Can I Use My Final Expense Policy for Long-Term Care (LTC) Costs?

Do I need Long-Term Care Insurance?

Potentially, yes. 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.

3. Savings and Retirement Funds for End of Life Expenses

Yes, you can use your savings and retirement investment funds for paying for end of life costs. Just note, that these need to be accessible to you when you need them to cover the bills. If the money is tied up in the stock market, you will need to account for the extra time and fees it will cost to free up that money.

Also, make sure that you are not relying on a pension or annuity that will expire once you pass. Some annuities have pay outs written into them when a annuitant dies, but some are done paying out completely with an end of life event.

Finally, know that often we have the best intentions for saving for retirement, but it doesn’t always work out the way we hope. If you think there might be a chance that you won’t be able to save enough, a funeral policy might be the tool you need to protect your family/friends.

Is Final Expense Life Insurance for Me?

What is Final Expense Insurance Pin

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.

Reasons for Having Burial Insurance

What is your reason for having final expense insurance? Finding your why is an important part of the buying process for funeral insurance.

Sometimes, people buy end of life insurance because they do not have cash on hand to cover funeral expenses, and they do not want their passing to put a burden on their family.

Other times, they might have cash on hand, but still want to provide their family with accessible funds, that is not in stock form, to pay for their funeral/burial. They do this in order to preserve their cash/investments to pass on to their family.

https://medicarelifehealth.com/burial-insurance

What Insurance Companies Offer Funeral / Burial Insurance?

There are many insurance carriers that offer final expense insurance as a part of their whole life offerings. Here are a few of the larger companies that offer solid, competitive products:

What to Look for in a Policy

The best funeral / burial insurance policies offer at least a few of the following benefits:

burial insurance for seniors buying guide
  • Level premiums (meaning the cost does not increase)
  • Affordable premium options
  • Guaranteed coverage (for people between certain ages)
  • Ability to skip medical exams (simplified or guaranteed issue in some cases)
  • No wait periods
  • Cash value build-up in the policy (for emergency access)

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.

Conclusions

Final expense insurance is an important part of your retirement planning.

It is a good option for owning life insurance in retirement that can secure yourself and your loved ones for the seen and unseen future events.

As we have seen, sometimes, even if you have saved enough for your final expenses, and paid off your debts before you retire, you still may benefit from final expense insurance. Especially, if your money is tied up in stocks or retirement funds, and you need access to cash quickly.