Final expense insurance is a type of whole life insurance policy with a small death benefit that is easy to get approved for. It is also referred to as funeral insurance, burial insurance, simplified issue whole life insurance, or modified whole life insurance. These terms all relate to small whole life policies with a face value (and death benefit) ranging from $2,000 to $35,000.
There is no fundamental difference between final expense insurance and traditional life insurance, except that insurers design the smaller final expense insurance policies to make them more affordable. Richard P. Sabo, a financial planner and insurance fraud expert in Gibsonia, PA, notes, “They market final expense insurance to people who are older and starting to think about funeral costs. It’s often portrayed as a way to take care of their family.”
The death benefit from final expense insurance is intended to cover expenses such as funerals, memorial services, embalming, caskets, or cremation. However, beneficiaries can use the payout for any purpose, such as paying property taxes or taking a vacation.
Sabo further explains, “Some people already own existing life insurance policies that could go toward final expenses, so they might not need an additional policy. Similarly, if someone has already prepaid for funeral expenses, final expense insurance may be unnecessary.”
Key Takeaways:
Definition: Final expense insurance is a small whole life insurance policy that is easy to qualify for.
Flexibility: The beneficiaries can use the death benefit for any purpose, such as funeral services, cremation, medical bills, or other expenses.
Death Benefit Amount: Typically ranges from $2,000 to $35,000.
Funeral Costs: The average cost of a funeral is between $7,000 and $12,000.
Understanding Final Expense Insurance
Final expense insurance is a type of whole life insurance. Once you have a policy, premiums cannot increase, and the death benefit cannot decrease. Unlike term insurance, whole life insurance does not expire at a certain age.
A whole life policy also accumulates cash value, which you can borrow against during your lifetime. However, any unpaid loans at the time of death will reduce the payout your beneficiaries receive.
When applying for final expense insurance, you won’t need a medical exam or provide access to your medical records, but you will need to answer some health questions. Due to these questions, not everyone will qualify for immediate coverage.
Premiums for final expense insurance depend on your age, health, and, where permitted, your gender. Older and less healthy individuals typically face higher premiums, while men often pay more than women due to shorter average life expectancies.
Some insurers issue policies to applicants from birth up to age 85. The maximum death benefit available may decrease with age, such as offering up to $50,000 for younger applicants but limiting older individuals to $25,000.
How Final Expense Insurance Works
Final expense insurance is designed for individuals who may not qualify for traditional life insurance due to age or health concerns. By offering smaller death benefits, it makes coverage affordable for seniors or those with poor health.
For example, consider a retiree without life insurance or sufficient savings to cover end-of-life expenses. Traditional policies might be unaffordable, but final expense insurance provides a smaller, permanent death benefit at a manageable cost.
The death benefit can be used for:
Funeral services or memorials
Cremation
Obituaries and flowers
Medical bills or other debts
Benefits of Final Expense Insurance
Affordable premiums due to lower coverage amounts.
Builds cash value over time.
Premiums remain fixed, aiding in budgeting.
No medical exams are required.
Coverage is guaranteed and cannot be canceled due to health deterioration.
Beneficiaries can use the payout for any purpose.
Special Considerations
Guaranteed Issue Final Expense Insurance
This type of policy is available to applicants with serious health conditions and does not require medical questions, exams, or records. However, it includes a waiting period (usually 2–3 years) before benefits are paid. If the insured dies during this period, beneficiaries receive the premiums paid, plus interest.
Graded Benefit Final Expense Insurance
A graded benefit policy offers partial coverage during the waiting period. For instance, it might pay 30–40% of the benefit in the first year and 70–80% in the second year, reaching 100% after the waiting period.
Factors in Final Expense Insurance Premiums
Premiums vary based on factors such as age, health, gender, and coverage amount. For example, a 65-year-old woman might pay about $41 per month for a $10,000 policy without a waiting period, while a man of the same age might pay $54.
Do You Need Final Expense Insurance?
Final expense insurance may not be necessary if you have sufficient savings, investments, or existing life insurance. However, it can be valuable for individuals who want to ensure their family can cover end-of-life expenses without financial strain.
The Bottom Line
Final expense insurance offers a small but meaningful death benefit that can ease the financial burden on loved ones. Coverage amounts typically range from $2,000 to $35,000, making it affordable for many seniors. While it may not be suitable for everyone, it can provide peace of mind and financial support during a challenging time.