What is Final Expense Life Insurance?
Final expense life insurance, also known as burial insurance, is a type of permanent life insurance with a small death benefit meant to cover funeral costs. These policies are relatively quick and easy to obtain but often come with higher premiums.
Understanding Final Expense Life Insurance
Final expense insurance is a generic term for any permanent life insurance policy with a small death benefit and a minimal medical underwriting process.
In other words, you may be able to obtain burial insurance without undergoing a medical exam or answering health questions.
This allows seniors to get life insurance despite poor health or underlying conditions.
- Your premium won’t change over time.
- Death benefit amounts average between $5,000 and $25,000.
- An insurance company may not pay the full benefit if you die one to three years after purchasing the policy.
- Premiums are higher when compared with other types of life insurance.
- Coverage is permanent and will not expire so long as premiums are paid.
- No medical exam is required.
Final expense insurance offers smaller death benefit payouts and relatively high premiums compared with more traditional policies.
For example, a 60-year-old man who purchases a 10-year term life insurance policy can expect to pay about $79 a month for $250,000 worth of coverage.
In contrast, that same man would pay between $105 and $172 a month for a final expense life insurance policy worth $25,000.
In short, his insurance premiums will cost at least 33 percent more a month for a tenth of the coverage.
Because final expense insurance is a form of permanent life insurance, your coverage will never expire so long as premiums are paid. This contrasts with term life insurance, which guarantees coverage for a specific time, such as 10, 20 or 30 years.
How Does it Work?
Rates for final expense insurance depend on your age, gender and coverage amount.
For example, men tend to pay higher rates than women because men have shorter average life expectancies.
Your age is also important. The older you are when you first purchase your policy, the more money you’ll pay.
Because final expense insurance offers a relatively small death benefit, it is possible to pay more money in premiums than your beneficiaries will receive as a payout from the insurance company — especially if you live a long time.
Consider the 60-year-old man from our earlier example. If he pays $172 a month for a final expense insurance policy worth $25,000, he will have paid $26,832 in premiums after 13 years. Yet his beneficiaries receive only $25,000.
Finally, the name “final expense life insurance” can be misleading. While these policies are often marketed as a tool to pay for a funeral or a burial, in reality, your beneficiaries can use the money for any purpose. There are no limitations on how the death benefit is spent.
There are two types of final expense life insurance: Guaranteed issue life insurance and simplified issue life insurance.
Guaranteed issue insurance is the easiest coverage to qualify for because it does not require a medical exam or health questionnaire.
However, the guarantee comes at a price. Insurance companies charge higher premiums for this type of policy because they are unable to assess how healthy you are, and therefore, how risky it is to insure you.
Guaranteed issue insurance also features low maximum coverage amounts that average between $5,000 and $25,000.
Simple issue insurance, on the other hand, requires you to answer some health questions. You may not qualify if you have a terminal illness, cancer, HIV or other serious medical conditions.
However, simple issue life insurance usually offers a higher death benefit payout and lower monthly premiums than guaranteed issue life insurance offers.
All final expense insurance may be subject to a graded death benefit. This is essentially a waiting period lasting one to three years after you purchase your policy.
If you pass away during this waiting period, your beneficiaries receive only a refund of the premiums you paid, plus some interest.
Is Final Expense Life Insurance Worth It?
Not everyone needs life insurance past retirement. It’s important to consider any debts or financial obligations your loved ones may face after you die.
If you decide life insurance is important, then it may be worthwhile to purchase a final expense policy.
Final expense insurance is relatively quick and easy to obtain. You can get approved for coverage within days — not weeks or months.
That’s because the application process is streamline, and much less intrusive than fully underwritten life insurance policies.
However, burial insurance for seniors is usually considered a last resort.
It is most appealing for people who can’t qualify for other policies because of health problems. It’s not a good deal for healthy consumers or people with only minor medical issues.
It’s always important to shop around and compare rates from different insurers before purchasing a policy.
The type of coverage you qualify for and the price you pay can vary greatly from one insurance company to another.
That’s why most experts recommend working with an independent insurance agent or broker. A professional may find that you’re eligible for a policy that offers more coverage at a lower price.
6 Cited Research Articles
- Danise, A. (2020, July 14). Pros And Cons Of Guaranteed Issue Life Insurance. Retrieved from https://www.forbes.com/advisor/life-insurance/guaranteed-life-insurance/
- Golden, N. (2020, May 28). Everything to Know About No-Exam Life Insurance. Retrieved from https://money.com/no-exam-life-insurance/
- Metz, J. (2020, May 19). The Best Options For Senior Life Insurance. Retrieved from https://www.forbes.com/advisor/life-insurance/senior/
- National Funeral Directors Association. (2019, December 19). 2019 NFDA General Price List Study Shows Funeral Costs Not Rising As Fast As Rate of Inflation. Retrieved from https://nfda.org/news/media-center/nfda-news-releases/id/4797/2019-nfda-general-price-list-study-shows-funeral-costs-not-rising-as-fast-as-rate-of-inflation
- DaveRamsey.com. (n.d.). What to Do If You're Denied Life Insurance. Retrieved from https://www.daveramsey.com/blog/denied-life-insurance
- LifeHappens.org. (n.d.). What happens if I’m denied life insurance? Retrieved from https://lifehappens.org/life-insurance-101/what-happens-if-im-denied-life-insurance/