What is final expense life insurance?

So what is final expense insurance? Like a traditional life insurance policy or whole life insurance, you pay into final expense life insurance as long as you live. When you pass away, the predetermined amount of money that your policy is worth — also known as the death benefit — goes to your beneficiaries. Notably, the death benefit will not change during the life of the policy and the premium is fixed to the amount you agree to initially.

Unlike most whole life policies, a final expenses policy is insurance that does not require a medical exam. At most, you might fill out an application form that asks some questions about your health. The underwriting process is short, and in some cases, you can have a policy in effect almost immediately.

Most people qualify for final expense life insurance policies, which typically have lower premiums (but comparatively higher than other policy types for the same death benefit amount). The death benefits are relatively low for final expense policies — usually about enough to cover funeral expenses alone. However, the beneficiary is free to use the death benefit in any way they choose.

What are some final expenses?

End-of-life expenses can be costly. Often, family members are unaware that funerals can cost tens of thousands of dollars. A few costs that people may forget to consider include:

• Funeral home expenses: Funeral homes — which can organize everything from the embalming, casket, liner, limo, hearse, visitation and more — typically charge thousands of dollars for their services. The final cost will depend on what options a family chooses, but the median funeral cost is $7,848, according to the most recent data from National Funeral Directors Association.
• Embalming: Embalming typically costs an average of $775. You can avoid this charge if you wish to cremate your loved one or bury them immediately.
• Reception costs following the memorial: Your preferences dictate the cost of the funeral reception. Some families spend a few hundred dollars on food at home, while others rent out event spaces for thousands of dollars.
• Casket: Perhaps the largest end of life expense, caskets typically cost between $2,000 and $10,000, while burial vaults cost an average of $1,572.

All told, funeral costs add up quickly. Final expense policies allow your loved ones to focus on grieving rather than worrying about funeral bills.

How much does a final expense policy cost?

If you’re considering purchasing a final expense policy, you may be wondering how much your premiums will be. Generally, premiums for final expense policies are very affordable as the death benefit is often low. Final expense premiums typically come in at under $100 a month. Of course, the premium you pay will depend on several personal factors, including:

• Age: The older you are, the more your policy will cost. After age 80, it might be more challenging to find a final expense policy.
• Gender: Because women statistically live longer than men, their costs may be lower.
• Health: You will not have to complete a health exam to qualify for final expense insurance. However, you will typically have to answer a few questions about your health on the application. Final expense insurance is not intended for those who are terminally ill. In some cases, you may qualify for a guaranteed issue life insurance policy, which covers high-risk individuals with serious health issues, but is also more expensive.
• Smoking habits: If you are a smoker, it puts you into a higher risk pool, which will likely increase your premium.

Together, these factors will influence the amount you pay for final expense insurance. Everyone is different and their insurance premiums reflect those differences.

What are some alternatives to final expense insurance?

Final expense insurance is one option for anyone who wants to ensure that their funeral costs are covered. This coverage is typically inexpensive and easy for your beneficiaries to access after your death.

But final expense insurance may not be the best option for everyone. For example, those who have a terminal illness may find it difficult to purchase a policy at a reasonable rate because they are in a high-risk category.

High-net-worth individuals may also find final expense insurance less beneficial because other investment opportunities could yield a higher rate for the money.

However, you may also want to explore additional policies that offer benefits final expense policies do not. These options include:

• Term life insurance: Term life is insurance that you pay into for a period of years — usually 10, 20 or 30 — which pays a death benefit for as long as the policy is in force. The amount of the death benefit is usually much higher for term life, but may not be much more expensive than final expense insurance. One drawback to term life is that once the policy term expires, beneficiaries cannot receive the death benefit.
• Permanent life insurance: If you prefer a policy that stays in force throughout your lifetime, permanent life insurance, such as whole life, is an option to consider. This insurance is generally more expensive than either term or final expense insurance, but in return, the payout your beneficiaries receive is typically high. As long as you pay your premiums, your beneficiaries will receive the death benefit.
• Investments: Another simple solution is to set aside $10,000 or more in a relatively liquid investment allocated for funeral expenses. You will likely want to make sure your heirs can access the account quickly after your death so they can plan your funeral and burial.
• Pre-pay options: If you would like to maintain control over what happens after you die, it is also possible in some states to pre-pay for your funeral costs by working with a favored funeral home. This way, you can choose your casket and even plan your memorial service. The drawback is that you cannot know all the factors that will come into play before you die — such as the funeral home going out of business.

For some people, having a final expense policy may not be the best option. Those who have a terminal illness may find it difficult to purchase a policy at a reasonable rate because they are in a high-risk category.

High-net-worth individuals may also find final expense insurance less beneficial because other investment opportunities could yield a higher rate for the money.