Life Insurance

What Is Final Expense Life Insurance and How Does It Work?

Final expense life insurance can be used to cover nearly anything related to your burial or funeral costs.

What Is Final Expense Life Insurance and How Does It Work

Final expense life insurance, also known as funeral insurance or burial insurance, helps cover your funeral costs, celebratory services, or medical expenses after you die. Because they’re intended for your final expenses, final expense insurance plans are usually lower in value than regular life insurance policies. For example, a typical final expense life insurance plan could have a benefit of $5,000 to $25,000, whereas the overall average face value of life insurance policies in the U.S. was $168,000 in 2018.

How Does Final Expense Life Insurance Work?

Final expense life insurance can be used to cover nearly anything related to your burial or funeral costs, including:

  • Funeral services
  • Burial or cremation services
  • Post-funeral gatherings
  • Flowers, music, obituary, etc.
  • Medical bills
  • Nursing home or other residential care
  • Savings for family’s future
  • Donations to charity under the name of the deceased

Policyholders pay a set premium that guarantees a payout upon their death. The policy is permanent, meaning insurers can’t cancel the coverage if your health worsens or as you get older, as long as you keep paying your premiums to keep the policy in force.

Funeral and burial services can become expensive. According to the National Funeral Director Association, the median cost of a regular funeral in 2021 was $7,848. If you choose to be cremated, the cost is slightly lower, at $6,970. That said, prices can vary dramatically depending on things like your choice of casket, burial site, and graveside service. As an example, a standard casket costs around $2,000, but if you opt for a luxury casket made of copper, bronze, or mahogany, it could cost as much as $10,000. A final expense policy could help with these costs. 

Overall, final expense insurance is a good option for people who might not be eligible for traditional life insurance because of health issues, pre-existing conditions, or advanced age. However, if you have a comfortable nest egg or have prepaid your funeral arrangements, final expense life insurance may not add any additional benefit or protection to what you already have in place.

Types of Final Expense Life Insurance

Simplified Issue Life Insurance

Simplified issue life insurance is a good compromise for people who may not be eligible for a traditional life insurance policy but are at moderate risk of early death. It doesn’t require a medical exam, but if you have certain terminal illnesses or aggressive forms of cancer, you may not be eligible.

For final expense simplified issue life insurance, many companies provide up to $35,000 in coverage. This is higher than most other final expense policies. Overall, simplified issue life insurance could be a good option for those who can’t get a traditional life insurance policy, but still want to cover their final expenses without a medical exam.

Guaranteed Issue Life Insurance

Guaranteed issue life insurance provides coverage to everyone except those who are terminally ill. However, premiums for guaranteed issue life insurance are sometimes higher, and coverage amounts are typically lower.

Guaranteed issue life insurance usually has a waiting period called a graded death benefit, usually lasting 2 to 3 years before your full benefits kick in. If you happen to die before then, your loved ones may get your premiums back, plus interest, but not your full death payout.

Because guaranteed issue life insurance offers coverage to even high-risk individuals, it could be a good choice for those who may not be eligible for simplified issue life insurance. For example, it could be an option if you’re in poor health and don’t have a nest egg to rely on, or if you don’t need a lot of coverage for your final expenses.

Advantages of Final Expense Life Insurance

Quicker Approval Process Than Other Policies

Because you don’t need to get a medical exam to get approved for a final expense policy, the process can move a lot faster. There are minimal limits regarding pre-existing conditions, so you may not have to go back and forth with an insurer to discuss coverage options.

More Affordable Than Other Insurance Policies

Final expense life insurance is sometimes more affordable than other life insurance policies because it typically has a lower payout value. Final expense insurance is meant for covering your funeral and end-of-life costs, so it doesn’t have as much value as regular life insurance. Since the policy doesn’t pay out as much, you don’t have to pay as much into it.

The cost of final expense life insurance varies depending on factors like your age and health. However, the average monthly cost is between $40 to $86 a month. Unlike some other insurance policies, which might increase in premium cost as you age or get sick, final expense life insurance is locked in at the rate you start with.

Assists in Out-of-Pocket Costs for Family Members

Final expense policies can help your loved ones handle your final arrangements without going into debt. With a final expense policy, they may be able to cover most or all of the costs of your funeral services, final medical bills, graveyard plot, and casket. 

Disadvantages of Final Expense Life Insurance

Smaller Death Benefits

One of the drawbacks of a final expense policy is that it has a much lower payout in comparison with other insurance policies. If you have bigger expenses, like a mortgage, student loans, car loans, or other debts, a final expense policy likely will not be enough to cover the money owed. It also usually is not a big enough sum to provide beneficiaries with a substitute for your income. 

You Must Read The Fine Print

Before signing anything, read the fine print to make sure you completely understand how the policy will work. For example, some insurers might offer a graded death benefit for a certain time period, usually 2-3 years at the beginning of the policy. If this is the case, your loved ones may get what you paid in premiums plus interest and nothing more if you die before the graded benefit period is over, which could be contrary to what you were expecting.

Payout Can Be Used For Anything

While the payout from final expense life insurance is intended for use on funeral and burial costs, it is ultimately up to your beneficiaries to use the money at their discretion. There is no oversight on how the money is spent, so it is possible for your beneficiaries to not use the benefit for burial at all.

When To Buy Final Expense Life Insurance

  • You no longer have dependents. If your children are grown and able to support themselves, they don’t necessarily need a big life insurance payout in the event of your passing. However, final expenses can be costly. Final expense insurance could be a good way to make sure your beneficiaries have assistance with paying for your burial costs.
  • You have pre-existing health conditions. Final expense insurance does not normally require a health exam or discriminate based on most pre-existing conditions. This means you may be eligible to get coverage even if you are not in the best health.
  • You want affordable coverage. Final expense insurance can be more affordable than a regular term or whole life policy, making it a good choice for people who may not be able to afford higher premiums.

How To Buy Final Expense Life Insurance

When you’re thinking about applying for a final expense policy, first add up your estimated funeral cost and any other bills you think you might have. This may help you decide how much coverage you need.

Policy applications may ask you questions about your health history, age, weight, and family history, which are factors used to calculate your premiums. You may also need other identifying information, like your driver’s license, address, phone number, and more.

Alternatives To Final Expense Life Insurance

Final expense life insurance is not the only option for covering burial and funeral costs. Other choices may be a better fit for your needs, including term life insurance, pre-need insurance, pre-need funeral trust, and a self-funded burial.

Term life insurance

Term life insurance is a life insurance policy that has a specified term date, usually ranging anywhere from 10 to 30 years. Because these types of policies lock in their rates for the duration of the term and usually offer higher death benefits, they typically have higher premiums than a final expense insurance policy.

This is likely a good option for people who are younger or still in good health. Otherwise, it may not be as affordable as final expense life insurance for those who are older or in poor health because the rate would be unaffordable or they not be approved for coverage.

Pre-need insurance

Pre-need insurance, also known as pre-need funeral or pre-need burial insurance, is a type of policy offered directly by funeral homes. Rather than needing to choose a beneficiary, your policy can be paid out directly to the funeral home. This could help those who do not have a clear beneficiary in mind, or if choosing a single beneficiary to receive the payout could be problematic.

You may decide on your arrangements beforehand as well, meaning family members don’t need to be involved. However, most pre-need insurance policies do not allow arrangement adjustments.

Pre-need funeral trust

With a pre-need funeral trust, you can contribute money to a special trust account that keeps earning interest. This money can go directly toward a funeral home or you can choose another relative or third-party entity to manage it. Whatever money you pay into the trust remains yours. This means it is possible to use it if you need the finances while you’re still alive.

Self-funded burial

For those who do not need financial assistance for funeral and burial costs, forgoing final expense insurance altogether to have a self-funded burial could be a good choice. This is a good option if you have a comfortable savings cushion and do not need the extra safety of an insurance policy or trust.