Final Expense Insurance: How it works

The main difference between other life insurance policies and final expense insurance is that final expense insurance allows insurers to sell a small policy that is more affordable. A funeral can cost anywhere from $7,000 to $12,000 on average. The goal of final expense insurance is to offer a benefit that the insured can use towards death-related expenses such as cremation, funerals, memorial services, caskets, tombstones, and embalming. With that said, beneficiaries of this type of insurance can apply the funds received towards anything they choose.

What Is Final Expense Insurance?

Final expense insurance is a type of whole life insurance, which is generally easier to be approved compared to most other types of life insurance policies (e.g., term life insurance). It offers a small death benefit, which is why it’s also referred to as burial or funeral insurance. It’s also referred to as modified whole life insurance or simplified issue whole life insurance, as it offers less than a typical whole life policy since it covers a death benefit only.

Do You Need Final Expense Insurance?

Insurers often target older individuals who are beginning to consider funeral expenses and ways to support their families after they pass. For those who already have life insurance policies in place or have already prepaid funeral expenses, final expense insurance might be redundant. Additionally, those who have investments or significant savings might not need final expense insurance.

Final expense insurance is ideal for those who don’t have much savings or a life insurance policy that can help with the costs people might face after a loved one's death. It’s also a consideration if your loved ones need funds immediately, as life insurance payouts are often faster than final settlement estate payouts—your beneficiaries will have faster access to cash.

What Are the Benefits of Final Expense Insurance?

Aside from paying out funds that can go towards death benefits, there are additional benefits of final expense insurance.

Final expense insurance premiums cannot increase once you’ve secured your policy. Also, the death benefit doesn’t decrease. Since final expense insurance is a whole life policy, it does not expire once you reach a specific age, as term life insurance does.

Your policy will also accumulate a cash value that you can choose to borrow against or use as collateral while living. If you have loans outstanding when you pass, your beneficiaries will receive a payout minus the amount you owe.

Additional benefits include:

•            It’s guaranteed coverage for most.

•            The policy cannot be canceled, regardless of your health status.

•            It relieves the financial worries of your family upon your passing.

•            It’s often an option for those who cannot secure other types of life insurance policies.

•            It’s an affordable option compared to other life insurance policies.

•            The premiums remain the same for the life of the policy—they do not increase or decrease.

•            The payout benefit can be used towards anything—it’s not required to be used towards death-related expenses.

•            It can be a viable option for those who no longer have life insurance through their employer

With all the benefits that come with final expense insurance, there can be some downfalls. Though it’s an affordable option given the lower benefit payout, comparatively speaking, it can be pricier than other insurance options with a similar payout due to the lack of a medical exam and health history requirement. Some policies also come with a waiting period, so you’ll want to be sure to read the fine print and details of the policy. Finally, it’s possible for your premium payout to exceed the death benefit if you live long enough.

What Are Costs Associated with Someone Passing Away?

Here are some of the cost estimates for when a loved one passes away:

•            Embalming: $775

•            Funeral home service fee: $2,300 (typically a required fee)

•            Hearse: $350

•            Transportation of departed to the funeral home or church: $350

•            Staff required for viewing: $450 multiplied by the number of viewings

•            Staff required for funeral service: $515

•            Staff required for memorial service: $515

•            Officiant: $100 - $200

•            Preparations for funeral (i.e., hair, makeup): $275

•            Service car: $150

•            Metal casket: $2,500

•            Cremation: $1,000 - $8,000 (depending on what you select on the lower or higher end)

•            Vault: $1,572

What about Premiums and Medical Exams?

With final expense insurance, you will not be subject to a medical exam, nor will your medical records be accessed. However, you do need to answer some health-related questions, and as a result, not everyone will qualify for this type of insurance.

Premiums for final expense insurance are based on criteria like your health and age, similar to other life insurance policies. If allowed by state law, gender can also impact premiums since men have a shorter average life expectancy than women. Rates will be higher for those who are older and suffer from additional health-related issues. Some policies also charge higher premiums for those who use tobacco products.

Is There an Age Requirement?

Some companies have an age minimum and maximum, like 40 and 85, respectively, at the time you apply for coverage. Other companies issue final expense insurance to anyone from birth onward.

Your benefit amount is typically tied to your age — the older you are at the time of application, the smaller your maximum death benefit might be. So, the younger you are when you apply, the larger your maximum benefit can be. Some, for example, might be able to get a policy with a payout of up to $50,000 if under the age of 55 but might only be able to get a policy of $25,000 when over the age of 75. Still, some insurances will offer the same death benefit options to all applicants, regardless of age.

How Does Final Expense Insurance Work?

If you reach out to a life insurance company or broker to discuss your life insurance options, and your primary concern is having death benefits, you’ll be asked a series of questions to determine if you qualify or not. These questions will be used to determine your overall health status and liability level.

With final expense insurance, you’ll receive a smaller death benefit than with traditional life insurance policies, which makes the premiums easier on your wallet. And as long as you maintain paying the premiums, the payout won’t change. Though it might not be the total amount required to cover all of your death-related expenses, it will give some peace of mind and support to cover at least some of the costs.

Other Types of Final Expense Insurance

For those who might not qualify for standard final expense insurance, graded benefit and guaranteed issue might be options.

Graded Benefit Final Expense Insurance

A graded benefit final expense insurance has a partial waiting period before benefits will pay out. The policy, for example, might pay 25% to 40% of the benefit if the insured dies within the first year after the policy take effect, 65% to 75% if the insured dies within the second year after the policy takes effect, and 100% if the insured dies in the third year or beyond that the policy takes effect. This policy might work better for those who have semi-serious health issues.

If you have a serious condition that’s in remission, like cancer, you might qualify for a graded benefit policy.

Guaranteed Issue Final Expense Insurance

This type of final expense insurance is ideal for those with serious health issues that would disqualify them from standard whole-life final expense insurance. It has a waiting period required for benefits to be paid out. So, if the insured dies within that waiting period, the policy will not pay out the face value. The policy will pay the beneficiaries the premiums paid by the policyholder with interest.

If you have a terminal illness or recently had open heart surgery, then a guaranteed policy might be your only option.

Work With a Professional From KBI

Different companies offer different policy terms for final expense insurance, so it’s best to shop around to determine what plan is best for your needs. You can also choose to work with an insurance broker, like the professionals at KBI, so they can do the heavy lifting for you. Brokers have relationships with a myriad of insurance companies, allowing them to streamline the process and also get the best price available. A broker can take your information, identify policies that meet your needs, and share various options with you, saving you time and money.

If you’re in need of life insurance and death benefits, contact KBI today. We’ll work with you to find a policy that meets your specific circumstances and budget.