When considering life insurance, final expense insurance might be helpful to have if your children are grown, no other dependents exist, and your financial responsibilities are greatly reduced.
Those who consider this type of life insurance product usually want something to cover the cost of a funeral, which on average runs between $7,000 and $10,000. Final expense policies often cover more than funeral costs.
While final expense insurance, often called burial insurance, is primarily concerned with providing enough money to cover a funeral, it may be available to use for medical expenses and end-of-life costs. Burial insurance is a type of permanent life insurance and if you continue to make payments, the policy is not typically cancelled.
Compared to other types of life insurance policies, this type is relatively easy to obtain and does not usually require an in-depth review of the application. If you think this may be the life insurance policy for you, consider which of the two types of final expense insurance is better: simplified or guaranteed issue life insurance policies.
Guaranteed Issue Insurance Policies Explained
Both types of final expense insurance are considered a permanent life insurance policy, but conditions do exist. The guaranteed issue policy covers you and pays benefits to your beneficiaries.
Some companies, however, have a special clause stating that if you pass away within a couple years of having the policy, the premiums are refunded without any additional benefits issued.
This is typically referred to as a “graded benefits” type of guaranteed issue policy. Other drawbacks from this type of policy might include:
- No coverage after 100 years of age.
- Terms of coverage are affected by state of residence, gender and age.
- Higher premiums than other types of life insurance.
- Lower payouts compared to other plans.
This can still be a good choice for you if you do not have much debt, have few if any relatives or family, and if you have poor health conditions.
With this type of life insurance, you are not generally required to have a health exam, and there is no credit check or background check. You can gain peace of mind knowing your last expenses are covered. Additionally, if you move, the policy follows you.
Simplified Final Expense Insurance Policies Explained
Like the Guaranteed Issue policy, the simplified final expense policy issues a basic policy designed to cover funeral expenses and some end-of-life costs.
The difference between the two types of life insurance products is the simplified policy does require you to answer medical questions about your health. You still do not have to undergo a full medical exam to be insured.
Just as with the Guaranteed plan, you typically have higher monthly premiums in comparison to traditional life insurance policies. If you need a plan quickly, these plans are the some of the fastest to obtain.
If you require a long term stay in a nursing home, Medicare requires your policy to cover the costs first before they take over payments. This means your entire policy is potentially drained before your funeral takes place.
How Your Beneficiaries Use the Final Expense Insurance Money
Just as with other death benefits, your beneficiaries can use the money however they wish. Most use it for funeral expenses but are not legally bound to do so. Some life insurance companies offer an additional service option allowing you to direct assignment of the benefit payout to the funeral home of your choice before your relatives receive any of the benefits.
After the cost of the funeral, anything left is sent to those listed on your policy as a beneficiary. Not all funeral homes accept this type of arrangement, so be sure to confirm this with the funeral home of your choosing before you obtain your policy.
Learn About Pre-Need Funeral Trusts and Insurance
Some states in the U.S. allow the sale of pre-need insurance policies. This is a pre-paid funeral policy that is limited in scope and it goes directly to the funeral home. No beneficiaries are included in this type of plan.
Additionally, one of the drawbacks to this type of final expense insurance is that many things can change over the course of several decades. For example, if your funeral home goes out of business, chances are this money can be lost. The money you place in such a pre-paid account may be used toward some type of investment with a greater return.
Pre-need Trusts are similar except the money you pay toward the funeral is kept in a special trust account at the bank that gathers interest over time.
Keep in mind though, the interest gained is considered income and is taxable. These types of policies are notoriously hard to modify once they are enacted.
Do You Need Final Expense Insurance?
Most experts agree that life insurance may not be necessary if you don’t have dependents, if you have plenty of money saved to cover your funeral expenses or if you have few debts.
If you want to leave something behind for family members or a cherished organization, then the final expense insurance might not the proper product to choose to achieve those goals. Consider, too, that most U.S. workers have Social Security benefits that are paid to a family after a wage earner’s death.
Furthermore, the benefits are adjusted for inflation each year. When considering the type of life insurance you need, be sure to ask yourself what you need to be covered and what you wish to occur upon your death. This ultimately directs your choices toward the funeral expenses only products, a simplified policy or in some cases no policy at all.