What Is Final Expense Insurance?

Final expense insurance is a form of whole life insurance. Since it’s considered a whole life plan, it develops cash value over time. However, unlike most whole life insurance policies, final expense insurance offers a significantly smaller amount of coverage, generally up to $50,000.00. The smaller amount is geared toward individuals looking only to cover their burial costs and maybe a few small debts.

Although it states the payout is for burial expenses, the beneficiary is not obligated to use it for those purposes. They can pay off bills, go on a vacation, or do whatever they would like. Final expense insurance can work as a stand-alone plan or as additional coverage alongside having a prepaid funeral arrangement.

Premiums are lower than policies with a higher death benefit, making having final expense insurance an excellent option for those on a budget or who are older. As long as the insured pays the premiums every month, the death benefit is guaranteed. A small part of the premium also deposits into a type of savings account which allows the policy to gain cash value. The insured can borrow against or get a loan from this value if they choose.

Who Needs Final Expense Insurance?

Final expense insurance is ideal for older individuals who want to cover funeral expenses but don’t have a large amount of excess cash. Since the amount paid out is lower, the premiums will be lower than traditional whole life insurance. Policies can range anywhere from $10,000.00 - $50,000.00. Unlike term life insurance, final expense coverage lasts the insured’s lifetime and is guaranteed if the premium is met.

Another benefit of final expense insurance is, it’s relatively easier to get than other insurance policies. For older individuals with pre-existing conditions, it can be hard to buy any life insurance at all. There is usually no health exam required for final expense insurance, only a questionnaire and the need to state which prescriptions you are taking.

When considering final expense insurance, the payout amount may depend on the insured’s age when signing up for the policy, depending on the insurance company. For example, some insurance companies will allow an individual who is 55 to take out a $50,000.00 policy. The premiums will be higher than a lower policy amount, but since the insured is younger and possibly in better health, they have the option for a higher death benefit. On the other hand, a 75 years-old individual may only be allowed to take out a $25,000.00 policy. Even if they are in relatively good health, their age limits the amount of coverage they can get. Many insurance companies will not offer policies to anyone over the age of eighty-five.

Pros And Cons Of Final Expense Insurance

A final expense plan may be the perfect fit for those looking for a smaller policy with no term limits and a lower premium. The pros of obtaining life insurance, even if you are older and having the death benefit guaranteed, are attractive for those who are no longer covered under their companies health insurance due to retirement. Being able to build cash value over time is also a comforting benefit.

On the other hand, there are cons to choosing a final expense policy over traditional whole life insurance. If you are younger, you run the possibility of overpaying the payout on premiums. Since the death benefit amount is lower if you make premium payments for years, you may pay more than the death benefit amount. Also, the lower benefit amount may not cover all your remaining debt if you still have a mortgage or higher loan balances.

Overall having a final expense life insurance policy is an excellent option for older individuals who only wish to cover burial costs or supplement a prepaid funeral plan. With the ability to build cash value, lower premiums, and a guaranteed death benefit, final expense life insurance can set your mind at ease that you are helping cover your final expenses so your family won’t have to.