Final Expense Life Insurance: Ultimate Guide for 2022

Final expense insurance is a whole life insurance policy that provides a death benefit you can use to cover medical bills and funeral expenses. But there’s so much more to it.

In the article below, you can learn:

Let’s get started.

What Is Final Expense Life Insurance?

We’ve already said that the final expense covers your funeral costs. 

There are several common synonyms we use for this type of insurance. The two most common ones are – funeral insurance and burial insurance – which we will use interchangeably in this article.

Having a final expense policy can be redundant for people who already have permanent life insurance.

That doesn’t stop insurance providers from marketing final expense insurance to seniors separately. It can come in handy, especially for those who don’t have a life policy. They emphasize that you are taking the financial burden off your back with the final expense insurance by covering end-of-life costs.

Even though final expense insurance is advertised for covering burial costs and medical bills, family members can use the death benefit for any other purpose. There’s no rule that binds you to use the burial insurance for burial expenses, but we will refer to this later in the article. 

How Final Expense Insurance Works

When you work, you have a life insurance policy your employer provides. Despite that, many people are saving as much money as possible, but not everyone can create a nest egg large enough to sustain them through life and cover end-of-life expenses.

Once you retire, ideally, you need to find another life insurance policy. As you start looking for a life insurance company with a decent offer, you may realize this can be too expensive. Opting for a burial insurance policy is the way to go.

Obtaining final expense insurance solves the problem of high premiums of life insurance that may not fit your budget. It is designed to help people from all walks of life cover their final expenses.

Naturally, the final expense insurance premiums are low because of the lower coverage. Becoming a beneficiary is fairly easy for a majority of people. But, before you get it, you will have to answer a couple of health questions.

Simplified Issue vs. Guaranteed Issue Life Insurance Policy

It is important to distinguish between two types of life expense insurance because they function differently.

Simplified Issue Final Expense Insurance

You want to have your final expenses covered in case of accidental death. Simplified issue insurance is made for people with no health issues but who want to make final arrangements on time.

There’s no medical exam required, and they will have to answer health questions to get approval. The coverage amount for this type of insurance goes up to $35,000, but that depends on the insurance company.

Guaranteed-Issue Final Expense Insurance

For those with deteriorating health, a terminal illness, or diseases such as congestive heart failure, a guaranteed issue is a way to go. There’s no medical exam required, and the only criterium is age. Anyone who’s old enough can apply. The coverage amount goes up to $25,000 for this type of insurance, but this one usually has a two-year waiting period.

Final expense insurance is permanent insurance, no matter which type you select. Your family members will receive the death benefit after your death and can use it as they see fit.

What’s Commonly Mistaken With Funeral Insurance?

Before we move on, we need to make a brief distinction between final expense life insurance and some other similar life insurance policies. Here are the two most common policies that people confuse with the final expense.

Term Life Insurance Policy

Term life insurance provides a death benefit to your family, but they will receive it during a specific term and not all at once. Once the term expires, the policyholder can either renew it, convert it to permanent coverage or let it lapse.

Receiving funds over a specific period of time and not all at once is the main difference between term life insurance and final expenses. Other than the guaranteed death benefit, this policy has no saving component. However, you should also know that you can turn it into whole life insurance with some providers, but this is something you will have to check with your seller. 

Universal Life

Universal life insurance is a type of permanent life insurance. While the death benefit is paid after you pass away, this is one of the life insurance policies that combines cash value with lifelong protection and is more similar to whole life than a final expense policy.

One of the main traits of this insurance is the ability to raise or lower premiums. Similar to the whole life, you can access your funds and use them, but this will affect the amount your family gets when you’re gone. 

Pre-Need Plans

Lastly, you need to separate final expense insurance from pre-need plans. You get insurance from the insurance company, whereas pre-need plans are purchased from a specific funeral home and don’t work as insurance.

These are directly tied to the funeral in which a funeral home calculates the expenses in advance, and you can pay for them all at once or over time. 

Source: lhlic.com

Who Needs Final Expense Life Insurance?

Usually, final expense insurance is marketed to senior citizens, but that doesn’t mean that you cannot start looking for the best burial insurance as a young adult.

When you decide to get end-of-life insurance is up to you, but let’s see how age makes the difference.

Final Expense Insurance for Seniors

Seniors is a primary group interested in final expense life insurance. As we get older, we start to think more about death and what happens with our family after we are gone.

Funerals can be quite expensive. One of the main concerns people have is not to leave their family in a difficult situation after their death. People go for final expense insurance primarily to deal with these costs themselves.

You have to consider different final expense plans and contact life insurance companies to get the best burial insurance possible.

And since seniors don’t want their kids to carry this financial burden, they usually find an affordable funeral service and make all the arrangements in advance, which is an additional step you can take.

If you are a senior and don’t have a life insurance policy, you might as well dip into your savings account and buy a final expense plan.

Final Expense Insurance for Young Adults

A final expense policy is something young adults don’t think about. The ones that do have some type of insurance usually have a regular life insurance policy. Truth be told, you don’t need final expense insurance in addition to life insurance.

However, if you don’t want to commit to a high life insurance premium, you might as well consider some final expense plans. Yes, the end is not near, but life can be unpredictable. In case of accidental death, having funeral expense insurance can make this slightly easier on your loved ones.

This is something to consider because of affordable prices and a death benefit that proves valuable for the deceased’s family.

Whether you get your final expense insurance as a relatively young person or not depends on multiple factors (health issues primarily). If you decide to go for it, ensure you have a steady income and no credit card debt or college debt.

This isn’t a priority for you.

However, getting the final expense insurance shows responsibility if you have a disease that runs in your family or any health conditions that can shorten your life. In this situation, you can consider various final expense policies and compare a cash value for each.

Benefits and Downsides of Final Expense Insurance

Final expense insurance has its own set of benefits but also has downsides. Before you even start looking at different life insurance providers and comparing final expense insurance plans, you need to know both the good and bad sides.

Final Expense Insurance Benefits

There are various reasons why insurance companies offer different final expense policies to US residents.

Build Cash Value

Like any permanent insurance, final expense insurance helps you build cash value. By paying your premiums, you will have money available to use.

While a majority of people will cover funeral costs with this money, you don’t have to, which leads us to our second benefit. 

Flexible Use

Although the death benefit is meant to cover your end-of-life costs, once you get the money, you can use it for your mortgage payments or credit card debt.

Many people use this money to increase their financial security and save it for later, whereas they use their paycheck to pay for a funeral home and deal with other immediate expenses.

You will know the coverage amount upfront, which will allow you to plan your budget. 

Relieve Worries of Family Members

Choosing a final expense policy on time relieves your family’s worries. Although they will need to take care of the funeral arrangements, the death benefit they receive will be more than welcome to help them out. Remember that for something like this to happen, you will need to have your premiums paid. 

It Is Affordable

Unlike whole life insurance, which can be somewhat expensive, getting the final expense life insurance is quite affordable. Premiums for your final expense don’t change, which helps you create a budgeting plan and follow it without any nasty surprises or additional fees.

Solid Insurance Choice

Overall, final expense insurance is a solid choice. Due to the low requirements, anyone can get this type of permanent life insurance. If necessary, you will complete a medical exam and answer health questions, but that’s about it.

Since the money helps you build cash value, you can use it as collateral later in life or for other purposes. For elderly people who don’t have whole life insurance, final expense insurance is definitely a solid choice.

Final Expense Insurance Downsides

Even though final expense insurance looks desirable with clear benefits, there are some downsides you must consider before you get one.

The Coverage Amount Is Lower

For example, despite higher premiums, whole-life insurance pays much more if you die. On the other hand, final expense life insurance only provides death benefits, which are usually enough to pay for a funeral home and cover some other expenses related to the death of your loved one.

Waiting Period

Some funeral insurance policies have a waiting period. In other words, you cannot get immediate coverage in case of death within the first two years of issuing the insurance.

The waiting period is usually connected to the guaranteed-issue type of insurance. 

Overpay It

Ironically, one of the issues of final expense insurance is that you can overpay it if you live long enough. In such instances, the death benefit you will eventually receive will be lower than what you paid.

Therefore, think twice before you buy final expense insurance because it may cost you more than it is worth. If you are still in your early retirement and feel good, perhaps you can wait a bit longer before going for it. 

It Can Be Unnecessary

If you already have a life insurance policy, getting the final expense insurance is unnecessary, despite some companies marketing it as beneficial. This type of policy is great for people who cannot afford to cover the life insurance policy’s premiums but have no other kinds of insurance.

However, you should weigh your options before you get the final expense. There might be some other options that are more suitable for your situation. 

How Much Does Final Expense Insurance Cost?

Price is one of the most important factors of the final expense life insurance. Before you choose a life insurance company, you need to know that the costs can vary and are affected by multiple factors:

  • Age
  • Health
  • Gender

On average, the final expense policy costs from $30 to $70 a month.

The healthier and younger applicants can get rates that start lower than $30 and go to $50. For people over 70 and with life-threatening health conditions, the prices can range between $70 and $120 a month.

The price of the final expense policy is not the only factor you must consider. You should also take into account how much your family will spend to make the funeral arrangements, pay off your debt (if any) and cover all the medical bills.

Funeral Costs

To help you plan your budget and choose the best final expense life insurance, you need to know the average funeral costs.

According to the National Funeral Directors Association (NFDA), the median cost of a funeral in 2021 was $7,848, but it can go up to $9,000, which was a 6.6% rise compared to 2016. Even though inflation plays a role and affects the price, the increase is not as rapid as with some other goods and services

Between 2016 and 2021, the inflation rate was 13.98%.

A funeral with cremation is becoming more and more popular. The funeral costs last year were $6,970, 11.3% more than in 2016.

Below, you can see the cost of an adult funeral with viewing and burial, and cremation and compare the prices

Source: choicemutual.com

Medical Bills

Even though a majority of US citizens have Medicare insurance, they still need to pay for some healthcare costs. Both Medicare and Medicaid only cover about two-thirds of overall expenses. In recent years, the number of Medicare beneficiaries has been going up, but the medical bills have also gone north.

To get a grasp of the medical bills and how much they can set back a family, we’ve provided a list of common Medicare coverage:

  • Routine home care – $193 daily
  • Continuous home care – $41 hourly
  • Inpatient respite care – $173 daily
  • General inpatient care – $744 daily

Here’s how that looks percentage-wise:

While these things are covered by Medicare, patients are often responsible for co-payments, prescription drugs, emergency care, inpatient facilities, nursing care, and other end-of-life expenses.

As you can see, even with insurance, medical bills can be pretty high. Therefore, having a life policy such as final expense insurance will help your family cover these costs alongside your funeral expenses.

Debt

Did you know that 73% of Americans die in debt?

When a person dies, this debt doesn’t disappear. Usually, people who inherit the person’s assets also inherit the debt.

According to the research, we present the average breakdown of a person living in the US:

  • Student Loans = $25,391
  • Auto Loans = $17,111
  • Personal Loans = $14,793
  • Credit Card Debt = $4,531

This is why having a final expense policy can be beneficial. Once a person dies and someone close to them starts paying off certain debts, they also need to cover end-of-life expenses – when you add all of this together, it can be too much. 

However, with a final expense policy, they can cover funeral costs and use that money to increase their cash value which they will further allocate to other expenses.

Should I Have the Final Expense Insurance?

So far, we’ve covered all the major points regarding the final expense life insurance. As a part of the whole life insurance, it is one of the attractive options for senior citizens, but even younger and healthier individuals could consider it.

Although final expense policies have benefits and downsides, getting this type of insurance is very simple. Sometimes, you may be required to complete a medical exam or just go through a few health questions, and you are all set.

The death benefit you receive can be allocated to other purposes, lifting the financial burden off the back of your heirs. In spite of it creating an obvious cash value and the application process being quite straightforward, you have to ask yourself a question:

Is final expense insurance for me?

If you are retired and don’t have a life insurance policy, you can definitely browse several burial insurance companies that will offer you different options to cover your funeral costs. Receiving a death benefit will help those who need to find a funeral service and sort out all the other things after the funeral is over.

On the other hand, if you already have life insurance, you will not have to pay extra for the final expenses life insurance policy because it is redundant.

Take your time, estimate your situation, and see whether you need a separate policy to cover your final expenses and whether your family could use the death benefit they will receive after you are gone.

But before you go:

Wealth Nation’s Lifestyle Banking

You have all the information you need about the final expense life insurance as well as some of its alternatives.

But what if we told you that you don’t need to take any of these and opt for lifestyle banking instead?

You’d still have the death benefit, you’ll still be able to make the final arrangements, pay for a funeral home and also have a financial safety net for your loved ones during these difficult times.

Not only that, but lifestyle banking allows you to create cash value and improve your lifestyle and your family’s. 

What Is Lifestyle Banking?

Lifestyle banking is the term Wealth Nation uses for infinite banking. This involves using your whole life insurance to finance your lifestyle instead of turning to the bank.

By making this little switch, you will have control over your money and not rely on institutions. In other words, you become your own bank – you lend and borrow money at the same time, and you have to pay it back if you want this to work.

There are some basic principles that you must follow in order to increase cash value.

  1. Overfunding your whole life insurance policy after paying your taxes
  2. Accumulating cash value for you as a policyholder
  3. Loans you take out against your policy’s cash value to use for your expenses

This concept is easy to understand, but it takes some time to see how it works in real life. Not everyone succeeded in creating cash value because of the poorly-designed life insurance policies. The policy you get is the first step, but it is crucial to succeeding later.

Lifestyle banking is just a methodology you will use to generate wealth.

Every time you make a premium payment, a portion of that money will be saved, and with each payment, you will create a bigger nest egg.

You can later use that money for different purposes:

  • Down payment on your home
  • Retirement income
  • purchase better insurance with a higher death benefit
  • Doing home renovation
  • Covering funeral costs

With lifestyle banking, you combine the best of both worlds – best of life and final expense insurance. You will be able to create cash value but also have a final expense coverage so that all the beneficiaries can cover all the costs associated with death.

With this financial safety net, you can take your mind off money problems and focus on building upon it further. The best thing about it is that you borrow money from yourself, not the bank.

Final Words

Final expense policies are aimed mostly at people whose lives are coming to an end and provide a death benefit to the beneficiary. This will help the family members choose a funeral home and cover all the costs related to funerals.

Such insurance policies are easy to get. In some cases, you will need to complete a health questionnaire, but usually, no medical exam is necessary. How much coverage you get depends on your age and overall health. The final sum is usually large enough to cover all the related funeral expenses.

Inusrance companies sometimes include a two-year waiting period, but this is something you must check with your provider. Although final expense life insurance targets mostly senior citizens, nobody prevents you to get this while you are younger to secure everyone around you in case of sudden death.

We’re Almost Done:

On the other hand, we presented you with lifestyle banking – a system that can work for you. You can use this system to accumulate cash, improve your financial status and use the money for end-of-life costs. The beauty of this system is that you are the one who acts as a bank, and you borrow money from yourself.

You can use that money for various things in life and not just your funeral costs. But first, you have to learn exactly how the system works.