Having the right insurance is crucial to protecting yourself and your loved ones. Final expense insurance is one type of policy that you may have heard of. Essentially, it's a specific type of life insurance that provides a small death benefit usually intended for funeral expenses.
If you're planning ahead to help protect your family financially in the event of your death, carefully consider whether buying final expense insurance is a smart choice.
Final expense insurance: The basics
Life insurance companies often market final expense insurance as "funeral insurance" or "burial insurance." Ads for final expense insurance might promise easy approval for older adults, regardless of health issues and without a medical exam. And this type of coverage typically offers a small death benefit.
Family members can choose to use final expense insurance to help cover funeral and burial costs — which could add up to tens of thousands of dollars. However, they could also use the payout from the final expense insurance to cover end-of-life expenses, medical bills, or anything else.
Final expense insurance is an alternative to a prepaid funeral plan, which you’d typically arrange with a funeral home or a third-party contract provider. With a prepaid funeral plan, you plan your funeral in advance and pay off the costs over time, with the price of the burial locked in.
How does final expense insurance work?
Final expense insurance is a particular type of permanent life insurance policy marketed to older people worried about end-of-life expenses. Typically, final expense policies are available for people between 50 to 80 years of age, though this can vary by insurer.
Final expense insurance policies are generally issued to people who might not qualify for traditional life insurance because of their age or health status. Policies could potentially be issued with no life insurance medical exam and sometimes without the policyholder having to answer any health questions at all.
These policies generally have low coverage amounts, such as a $10,000 cap or $25,000 cap, depending on the insurer. Policyholders typically pay premiums monthly or annually, and the policy may remain in effect as long as the insurer receives the premium payments. Once the policyholder passes, a death benefit is paid out to a chosen beneficiary. Beneficiaries can typically use the payout for any purpose, despite the name "final expense insurance."
Are there different types of final expense insurance policies?
Final expense insurance policies can be broadly divided into two different types of insurance products:
- Guaranteed issue: As the name suggests, guaranteed issue policies are typically available to anyone who applies for one. Applicants might not even need to provide any health information to get coverage. Guaranteed issue life insurance usually has smaller death benefits than simplified issue policies, and monthly costs can be higher. Premiums can be up to $180 per month, though insurance costs can vary depending on age and the amount of the death benefit.
- Simplified issue: Simplified issue policies generally don't require a medical exam during the underwriting process, but you will likely need to answer questions about your health status, which could make this type of policy harder to get if you have health issues. You might be eligible for a policy with a higher death benefit, and monthly premiums are usually around half the cost of a guaranteed issue policy — although they can vary based on age, death benefit amount, and your health status.
Which companies offer final expense insurance?
Many different companies offer final expense insurance, including the following:
- State Farm: State Farm offers a $10,000 final expense policy available to individuals between ages 50 and 80.
- Mutual of Omaha: Mutual of Omaha provides a guaranteed issue policy offering between $2,000 and $25,000 in coverage for final expenses. The policy is available to people between the ages of 45 and 85.
- Fidelity Life: Fidelity Life provides between $5,000 to $35,000 worth of insurance coverage. There are two different options — RAPIDecision Final Expense and RAPIDecision Guaranteed Issue, neither of which require a medical exam.
Can you use final expense insurance to preplan a funeral?
Final expense insurance isn't necessarily the best choice if you're hoping to preplan a funeral specifically. If you want to choose your service, flowers, casket, and burial site, then you might be better off working with a funeral home or a third-party provider that offers a prepaid funeral plan.
However, if you do want to use final expense insurance rather than prepaying directly for a funeral, then you might be able to do so. In some states, you could do this by naming the funeral home as the beneficiary on your final expense plan. You could also work with the funeral home to make your selections and then buy a policy with a large enough death benefit to cover the costs of your preferred service.
If you name a family member as the beneficiary on your final expense insurance, they will have more flexibility with using the funds. While you can discuss your wishes with your loved ones, it will be up to them to use the money to carry out your chosen burial plans.
Before buying final expense insurance, it’s essential to be aware that these policies are often expensive relative to the size of your death benefit. Some states have imposed strict regulations on these types of life insurance plans because consumers have complained about them.
Will pre-planning a funeral save you money?
According to the National Funeral Directors Association (NFDA), the national median cost of a funeral was $7,640 in 2019. This included the cost of a viewing, embalming, a casket, and other related expenses. If a cemetery burial was chosen and a vault was required, the average funeral cost rose to $9,135. This did not include the cemetery or headstone expenses or the cost of printing an obituary.
If you pre-plan your funeral with a prepayment plan, you could potentially save money on your funeral expenses. That's because when you choose a prepayment plan, the funeral home typically locks in the price for you. So even if costs go up, your loved ones might not have to pay more after your death.
However, there's no locking in the price of funeral costs if you buy final expense coverage. The purpose of this type of policy is to make sure burial costs and other end-of-life expenses are covered, so your loved ones don't have to pay out of pocket for them.
Alternatives to final expense insurance
There are many alternatives to final expense insurance, including the following insurance products and plans:
Term life insurance plans
Term life insurance typically provides a more significant death benefit and is often much less expensive than final expense insurance. Insurers often have age limits for term policies, so older people may not be eligible for term coverage.
To get approved for term life insurance, you might also need to answer health questions or undergo a medical exam. However, certain insurers, like Bestow, don’t require a medical exam. Read our full Bestow review for more information.
The death benefit is often larger on a term life policy, and term life coverage isn't explicitly marketed for funeral costs. If you are younger and want more protection than final expense insurance can provide, but you only need that coverage for a limited time, then a term life policy is a better choice. Just keep in mind that the death benefit only pays out if you pass away for a covered reason during the policy term.
Whole life insurance policies
Whole life insurance is a type of permanent life insurance that typically remains in effect as long as you pay premiums, which means it tends to be expensive. Many permanent policies also have an investment component and acquire a cash value.
These types of policies could be more difficult to qualify for than final expense insurance, with many requiring a medical exam, but the death benefit is often much larger. If you want the peace of mind that your family could receive a significant payout no matter when you pass away, or you're interested in insurance as an investment, a whole life policy could be a good choice.
Prepaid funeral plans
Prepaid funeral plans generally involve planning out a funeral and arranging to pay for it in advance, either with the funeral home or with a third-party provider. A prepaid funeral plan allows you to select and pay for each burial aspect, from flowers to the casket to the service. A plan like this could be a better option if you want to plan every detail of your service and lock in its cost.
If you cannot qualify for a traditional term life insurance policy and you want your loved ones to have a little flexibility in how they use the death benefit to cope with your end-of-life costs, final expense insurance could be the best choice for you. However, the cost of these policies is often very high relative to the benefits they provide, so you may wish to look into alternatives such as a prepaid funeral plan.
Which is better, permanent life insurance or final expense insurance?
Final expense insurance is a type of permanent or whole life insurance. It can be easier to qualify for than a traditional permanent life insurance policy, which typically requires a medical exam. But a conventional permanent life policy could provide a much larger death benefit.
If you want a large life insurance policy to help protect your loved ones from financial loss if you die, then a permanent life insurance policy could be a better option. But if you are older and want a small policy that doesn’t require you to undergo a medical exam, then final expense insurance could fit the bill.
Is there a waiting period for final expense insurance?
Some final expense insurance policies impose a waiting period, which means your coverage doesn't kick in immediately. If you die during the waiting period, the policy will not pay out a death benefit.
Other insurers offer policies without a waiting period but might offer graduated benefits. That means only a partial benefit is paid out for a set period. However, others might provide full coverage right away.
It's important to shop around with different insurers to find coverage with no waiting period if you want immediate protection.
Do you need a medical exam for final expense insurance?
Final expense insurance is generally available with no medical exam. With some guaranteed issue policies, you may not even need to provide information on any health conditions to get insurance coverage.
The bottom line
If you don't want your loved ones forced to pay for your burial expenses or other end-of-life costs, buying final expense life insurance could be a good option. But be sure to research the alternatives and get insurance quotes. This can give you peace of mind and help ensure you're getting the protection your loved ones need.
If you’re in the market for coverage, shop around with the best life insurance providers and get quotes to find the right policy for you.
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