Final Expense Insurance: Ultimate Guide 2021
The death of a loved one is always a painful experience and not something you want to think about in your day-to-day life. But no matter the pain, the family members have to organize funeral rites to properly inter the dead.
The funeral program allows mourners to say their final goodbyes to their departed loved ones. Hence, there is the need to hold a befitting occasion.
However, the costs of final rites can be discouragingly high.
The cost of funerals alone has exponentially risen over the last several decades, as shown by the chart below. Unfortunately, this growth trajectory has not slowed down over the previous 15 years.
Insurance companies claim that the average cost of organizing a funeral in the United States ranges from $7,000 to $12,000. This sum only covers the essential items and leaves out the seemingly not-too-important expenses.
Even cremation, the next most popular form of disposing of the dead after burial, is not cheap.
Source: Choice Mutual
The total cost of final rites varies based on state. Hawaii has the highest average burial cost ($14,975), and Mississippi has the lowest ($6,684). But when you add on other end-of-life expenses, the price more than triples.
In Hawaii, burying a loved one costs an average of $41,467, and the same costs $18,509 in Mississippi.
Source: World Population Review
The impact of the extremely high cost of funerals is that families and survivors experience yet another form of loss. However, this time the loss is a financial one.
Not to mention the significant personal loss that the survivors would not have recovered from yet. The combination of all these can have substantial effects on the surviving family’s emotional, physical, and financial well-being.
But this is very much avoidable. There is a solution to the financial burden that survivors have to bear after the departure of their loved ones. This fix comes in the form of Final Expense Insurance.
What is Final Expense Insurance?
Final expense insurance is a type of traditional life insurance. Many take a final expense policy to cater to the expenses related to their last bit of time on earth.
This insurance mainly aims to enable the survivors to pay for the costs arising from the funeral of their departed loved one. As a result, many refer to final expense insurance like funeral insurance or burial insurance.
Some refer to it as simplified or modified whole life insurance because it is a type of life insurance.
In some cases, the policy may also pay for other spending items. Those items include late-stage hospital bills and court bills relating to resolving the dead person’s will/estate.
Let us take the fictional scenario of 65-year-old John Doe, who has been retired for a few years. Because he is retired, he has no access to any life insurance schemes from an employer. As he advances in age, John Doe starts to get worried about the potential cost of his final days.
Even more concerning to Mr. Doe is the burial expenses that his loved ones will have to pay for when he passes. He knows that these funeral costs are going to be on the high side.
And he worries that no insurance company will want to insure him because they consider him high-risk due to his age and range of medical conditions. The only silver lining in the sky for Mr. Doe would then be in the form of the final expense insurance.
With final expense insurance, his age and medical conditions would not stop him from getting insured. He can avoid paying outrageous sums as premiums with the life expense insurance, and he is sure to have coverage for all of his end-of-life expenses.
He can stop worrying about what life after his death may hold for his loved ones. To some extent, some of the necessary costs would have already been covered.
The beneficiaries of final expense insurance are not obligated to spend the payout strictly on burial or related expenses. They can use it to settle other bills such as credit card repayments of the deceased. They can even use it to look after themselves.
However, it is not only when one is denied conventional life insurance that one takes up the final expense insurance.
In fact, many individuals with active whole life insurance still take up final expense insurance policies. Many people do it only to bolster the financial position of their survivors when they pass.
Because final expense insurance is a smaller policy, they often come with an easy application process and fast approval. Many applicants can get their coverage issued within days. And applicants don’t have to subject to a life insurance exam; they simply have to answer a few questions on the application.
Additionally, these policies are permanent, which means burial insurance doesn’t expire unless the policyholder stops paying their premium.
What is Included in Final Expense Insurance?
Final expense insurance covers expenses relating to the last periods of the subject and related costs. Specific items that final expense insurance policies typically cover include:
- Funeral costs, including planning and organizing, and compensating those involved in organizing a memorial service.
- Burial/interment costs, including the cost of caskets, cemetery plot, and headstone. It also caters to cremation if that is the option chosen by the deceased or their family.
- Funeral home costs, including the cost of embalming.
- Paying any outstanding medical bills.
- Legal fees that arise from liquidating assets and administering the will and estate.
- Taking care of other unexpected expenses such as outstanding debt and bills.
What are the Benefits of Final Expense Insurance?
Final expense insurance has numerous features and offers many attractive advantages to several people. This is because it fixes the challenge of accessing last-day insurance and, in the process, brings comfort to many people.
These benefits include:
- It is Easy for Applicants to Qualify
Many types of insurance are available for people in their last days. However, the problem is that they are less accessible for several people. Getting conventional whole life insurance should be the default, overwhelmingly popular choice.
However, it involves several hurdles for the potential insurance policyholder that can leave many out.
For one, the insurance company will carry out several assessments on the insurance subject. These tests aim to determine the subject’s risk profile to help the insurance company decide whether or not they will issue a life insurance policy to such a person.
Then, if they will, it also helps them decide on the circumstances under which such a policy will be issued. These assessments will cover:
Age is one of the most critical factors that either increases or decreases a person’s supposed risk profile when it comes to issuing life insurance. If a subject is advanced in age, they are considered a higher risk to the insurance industry. This is quite understandable, as a 75-year-old is likely to die much sooner than a 65-year-old.
- Medical Condition:
Any adverse medical condition that can speed up the death of a subject is another significant consideration. A person with any serious or terminal illness is riskier to insure than one who is relatively healthier.
Traditional life insurance policies require a medical assessment to determine the overall health of the applicant. Even if the applicant has something relatively minor like obesity or excessive cholesterol, insurance companies deem them high-risk.
They also look at the applicant’s health history and their family members’ histories, where possible. The reason for this is simple: several terminal diseases are hereditary. Having someone in the family who has once been diagnosed with such an illness increases a subject’s risk profile.
The medical condition referred to here also extends to mental health issues. As a result, having any history of cognitive challenges such as post-traumatic stress disorder (PTSD) or excessive anxiety increases the applicant’s risk levels.
This is not too common and, in fact, not permitted in some states. But gender is sometimes used as an indicator of risk. It is believed that generally, men tend to live a shorter lifespan than women. Therefore, men are considered to be at higher risk than women.
Most people spend a significant portion of their time at work. Hence, the risk they face at work will be considered in the insurance company’s assessments. Getting approval may be challenging if the applicant currently works as a pilot, truck driver, cop, farmer, or another high-risk field.
Additionally, if the applicant is retired, the insurance company may still want to explore their employment history. If the applicant worked in adverse or toxic conditions, they have a higher risk of developing a medical condition than someone who worked in a safe environment.
A person’s choice of lifestyle can put one on the course of danger. This danger can materialize in the form of diseases. Many terminal illnesses may be caused by lifestyle choices such as cigarette smoking or excessive drinking.
For instance, Mr. Doe, from our example above, may be a bit diabetic, but he also loves to drink indiscriminately. The insurance company may want to pass on him.
Additionally, the hobbies a person takes an interest in can be dangerous as well. Racecar driving and skydiving are riskier hobbies than others.
- Financial State:
How solvent or financially responsible one has been in the past can inform an insurance company’s decision as to whether to grant a policy or not. Thus, if the applicant has once been bankrupt or credit card records show default, the companies may avoid the subject for fear of non-payment.
If the insurance firms look at a mix of these factors and deem the subject too risky, they may decline to grant them a policy. But should anyone be denied the desire to make life easier for their loved ones after death?
This is more precarious considering that some of the above factors are not determined or influenced by the subject themselves. Such factors as age, inherited medical complications, gender, occupation, and even financial state are often beyond the control of the subject. It is unfair that they should be denied coverage for factors they can’t change.
Final expense insurance provides a way around all of these tests and assessments. In nearly all cases, there are no medical tests at all.
Almost everyone who applies receives a policy. The belief is that everyone will die, irrespective of whatever risk factors they may have. Final expense insurance offers comfort by providing afterlife coverage.
- The Premiums on Final Expense Insurance are Fixed
We know that insurance companies carry out risk assessments to determine if they will insure a subject or not.
In the case that they decide to insure the person, the company uses the risk assessments to arrive at insurance premium figures that the new policyholder must pay for their coverage. A person with a higher risk profile will pay a more expensive premium.
However, in other types of insurance, the firms offering the coverage conduct regular reassessments of the insurance policies. The purpose of these reviews is to examine the current risk profile of the insurance subject to see if there is any change.
If they note any change, the insurance companies can request a corresponding change in the insurance premium. For example, if the subject has become riskier, they will demand an increase in the premium.
This is not the case with final expense insurance. Once the insurance company issues a final expense insurance policy to any person, the premium on the policy stays the same until the policyholder passes.
A supposed increase in the risk profile does not call for any increase in premium whatsoever. For instance, going back to the case of Mr. John Doe, if he is later diagnosed with late-stage cancer, the insurance company cannot mandate that his premiums should increase.
- The Premium Cannot be Cancelled
This is similar to the above. Insurance companies carry out assessments on the potential subject to determine whether or not they will issue the applicant a policy.
If the person is considered too “risky,” they will decline to insure the subject. However, if they think the risk is low, then they will issue the policy.
In some cases, after issuing the policy, the insurance company discovers that the said subject has become too risky for them to continue with the policy. That may be due to a health complication, an accident or catastrophe, financial mishaps, and others.
The insurance company may then cancel the policy, causing significant discomfort to the subject, who is already in a stressful situation.
This does not happen with final expense insurance. When a person is granted a final expense insurance policy, the policy is guaranteed for the rest of their life. The only condition that can cause cancellation by the insurance company is a significant delay in paying the premiums.
- Final Expense Insurance Gives Some Comprehensive Cover
Since final expense insurance is also called burial insurance, many assume that it is strictly for funeral expenses and almost nothing else. However, it can provide coverage for so much more. Final expense insurance caters to all the expense items that relate to the interment or cremation of the subject.
These expenses include:
- Medical Bills:
It is not uncommon for the circumstances that led to the subject’s death to warrant going to the hospital. In fact, according to a Stanford University report, a tidy 80% of Americans die in hospitals or nursing homes. More so, a good majority of these persons spend the last 3-4 weeks of their lives in hospice care.
The death of a loved one who spent their final days in professional care can lead to their family being saddled with medical expenses. These expenses can involve the basic ones, including the cost of bed space, or even expensive ones, such as payment for a surgical procedure.
Having the survivors bear these costs can tell on their financial and emotional well-being during the period of mourning. Thus, final expense insurance brings a lot of relief as it can help cover these medical bills.
- Outstanding Debt Left by the Deceased:
When the survivors of the deceased are still dealing with the aftermath of the irreparable loss, they shouldn’t have to deal with complicated financial problems left behind by the departed.
These problems may become an even greater cause of worry if the next of kin inherit these debts. Or, in some cases, if the debt puts the loved ones in uncomfortable situations.
For instance, the subject might have taken up a mortgage, of which failure to pay the monthly price when due may cause the banks to foreclose the property.
This will put the survivors in extremely uncomfortable positions while they are still dealing with the loss of their loved ones. Other types of debts include outstanding credit card bills and auto loans.
Taking up a final expense insurance policy may help to pay down these debts. It may also bring some relief to the family.
- Easier Transition Process
Thinking about dying is uncomfortable. But having some financial buffers in place for a person’s loved ones may make the pers feel more at ease because they won’t have to worry about their survivors.
With final expense insurance coverage, the survivors will not face dire financial problems upon the death of their loved one. This translates to greater peace of mind for the dying person and some comfort for the loved ones they leave behind.
What is the difference between Life Insurance and Final Expense Insurance?
Life insurance does not vary significantly from final expense insurance. In fact, in many places, final insurance is viewed as a type of conventional life insurance. Yet, there are some points of differences, including:
- Items Covered:
Insurance companies design traditional life insurance to be a kind of income replacement package for the survivors of the deceased. It covers everything from mortgage payments, student debt, auto loans, and more.
Final expense insurance primarily focuses on the policyholder’s end-of-life expenses, such as burial costs and medical bills. However, it can be spent on anything else that the survivors need help covering.
- Coverage Sum:
The typical conventional life insurance can cover from a few tens of thousands of dollars to hundreds of thousands or even more. On the other hand, final expense insurance will usually cater for a few thousand, and most policies range between $2,000 and $50,000.
- Need for Assessment:
Assessing the medical state of a subject through a physical and mental test is one of the key attributes of life insurance. They also take a look at other aspects of the person’s life, including their occupation and lifestyle.
These assessments enable the insurance firm to decide if they will issue the subject an insurance policy. Many insurance companies will deny coverage to applicants who are considered high-risk.
However, with final expense insurance, there is no need for all of these assessments. There is almost always the guarantee that the person will be issued the policy. At most, the applicant will have to fill out a medical survey.
- Age of the Subject:
On average, life insurance policyholders are usually much younger than those who take on final expense insurance. Sometimes, senior citizens take on final expense insurance when they are far beyond the reasonable qualifying age for life insurance.
Does Final Expense Insurance Have Cash Value?
All good final expense insurance policies have a cash value component.
This means that the policyholder or subject can draw financial benefits from the insurance policy. In essence, holders can take up loans from banks while offering their final expense insurance as security.
Are There Different Options for Paying for Final Expense Insurance?
Yes. Depending on the applicant’s risk assessment and the insurance company, the policyholder may have up to three options for covering their final expense insurance premium.
Suppose an applicant is exceptionally high-risk (i.e., advanced in age, diagnosis of a terminal illness). In that case, the insurer may require them to make a lump sum payment to cover their premium. Insurance companies also prefer lump sums when a child is taking out a policy for their parent.
At the same time, a lump sum payment may be a better option for those worried about staying on top of monthly installments. If the entire premium is paid upfront, the policyholder guarantees that their loved ones will have coverage when they pass.
- Fixed Period
Policyholders usually opt for fixed period payments when they’re still employed and are concerned that they won’t be able to keep up with payments after retirement.
For fixed period installments, policyholders pay higher rates over 10-20 years, and then the policy is locked in for the rest of their lives. This guarantees coverage and secure retirement.
- Periodically – Monthly or Annually
Many people opt for monthly or annual payments toward their final expense insurance premium. These regular payments are often lower than the other two options, but some policyholders end up paying more over their lifetime.
The total paid through periodic installments depends on when the policy is first assumed and when the insured passes.
The most significant concern with periodic payments is the possibility of coverage lapsing if the policyholder misses a payment.
Are There Different Types of Final Expense Insurance?
Yes. There are two types of burial insurance. They vary based on the total benefit amount, premium price, and the amount of medical information you have to disclose to apply.
- Guaranteed Issue Insurance
Many individuals looking for final expense insurance end up with a guaranteed issue policy because insurance companies rarely decline applications for coverage.
Even individuals who are considered high-risk can take out a guaranteed policy. However, because these policies are open to all, the premiums come at a higher cost for lower maximum coverage amounts. Many guaranteed issue policies cover $5,000-25,000.
- Simplified Issue Insurance
Simplified issue policies are primarily adopted by those who don’t qualify for a traditional life insurance policy but aren’t quite high-risk. These policies typically provide coverage for moderate-risk individuals.
Applicants still don’t have to take a medical exam, but they typically must answer a detailed medical questionnaire. Simplified issue policies will cost less than guaranteed issues policies but more than term life coverage. However, you can get coverage for up to $50,000.
How Can I Guarantee That My Beneficiaries Will Use as I Intended?
Because final expense insurance can be used to cover multiple expenses, depending on your policy, you may want to ensure that the coverage is used to cover specific costs. There are a few ways you can guarantee that the payout is used as you plan.
- Choose Someone You Trust as Your Beneficiary:
The person you assign as your beneficiary should be someone you trust implicitly. Your beneficiary should be someone you can openly discuss the policy with and tell them precisely what you’d like them to use it for (if you have a preference).
Typically, many people choose a beneficiary that will be financially impacted when you pass, such as a child or grandchild.
- Name Your Preferred Funeral Home as Your Beneficiary:
Check with the funeral home you want to work with to see if they will accept an assignment of the final expense insurance payout. In this instance, the proceeds of your policy will go directly to the funeral home to cover burial costs.
- Write Out Your Final Wishes:
In addition to your official will, you can sit down with a financial advisor to determine how your policy’s payout should be allocated. Or you may want to craft an official document outlining your wishes for your final rites and requests.
How Much Does Final Expense Insurance Cost?
The cost of a final expense insurance policy will depend mainly on the factors that affect life insurance policies. These factors are used to determine how much you will pay as a premium and how you will spread out the payments.
One of the most important factors is age. What you pay per month will generally depend on your age. The more advanced in age you are, the higher the per-month payment. This is because it is thought that an older person typically has less time to pay up the insurance premium.
Thus, if one is 65 and takes up a $10,000 policy, such a person may be required to pay approximately $45 per month. However, a 45-year-old may only pay $25.
Nevertheless, most final expense insurance policies start as low as $20 to as much as a couple of hundred dollars per month. It is essential to check with multiple insurance providers before settling down with one.
Source: Lincoln Heritage
Most of us can’t plan when or how we leave the world. But we can make life a bit easier for the loved ones we leave behind. One of the best ways to go about this is by taking on final expense insurance.
However, since you will not be here to see how things play out, it is crucial to be adequately informed. We hope the above synopsis provides a quality guide.