What is final expense insurance? (2024)

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• Funeral/burial insurance is a good idea if you are on a fixed income and don't want to bother with a medical exam.
• Life insurance pays the funeral home first, causing a delay before your beneficiaries receive the payout.
• If your beneficiaries are relying on your life insurance for regular living expenses, this delay can disrupt their livelihood.
• Funeral insurance will cover final burial expenses while allowing your beneficiaries to get an immediate payout of your regular life insurance policy.

The loss of a loved one is emotional and traumatic. Making funeral preparations while grieving adds another layer of stress. Finances and the availability of funds compounds the issue. Typically, a life insurance policy will pay the funeral home and cemetery before disbursing funds to the beneficiaries. That means that your beneficiaries will have to wait a few weeks before receiving funds.

If those funds are needed to handle the mortgage or other expenses, regardless how large of a policy you selected, they will not have access to those funds for a while.

This is where having funeral insurance, also known as "final expense" insurance, comes in handy. Your beneficiaries can use the funeral policy to handle all of the funeral expenses and receive an immediate payout of your other life insurance policy to cover bills and other necessities. If you already have life insurance, you should consider adding funeral or burial insurance, also known as "final expense" insurance.

What is final expense insurance?

Final expense life insurance is a type of no medical exam guaranteed issue life insurance. Guaranteed issue life insuranceis also referred to as "final expense/funeral insurance" because the coverage amounts are so low that they basically only coverfuneral and burial expenses.

Traditional insurance policies require a medical exam as part of the approval process known as underwriting. No medical exam life insurance offers quick approval for coverage and can be good if you are in poor health. Because there are no medical exams or health questions, life insurance providers consider these applicants a higher risk and premiums are usually more expensive for less coverage compared to traditional life insurance that requires a medical exam.

Pre-need and burial insurance are different products

There are several types of life insurance products. You may have heard burial and funeral insurance used interchangeably. Basically, funeral and burial insurance refers to products that cover "final expenses," like funeral service or crematory costs. However, this should not be confused with pre-need insurance.

When a person works with a funeral home to decide exactly what they want and they pay for everything in advance, that coverage is called pre-need life insurance, Les Masterson, managing editor of Insure, told Insider.

We do not recommend pre-need insurance because the beneficiary is the funeral home and coverage is specific to the chosen funeral home. Should the funeral home go out of business or you move out of state, you may not have coverage, and that defeats the purpose of pre-planning. Additionally, according to the AARP, the Funeral Consumers Alliance (FCA) advises against buying pre-need.

The big difference between life and funeral insurance is the death benefit

Masterson noted funeral insurance, also called burial or final expense insurance, is a type of life insurance policy that can come as term or permanent life. We typically recommend term life insurance over permanent life insurance because it's cheaper and provides the death benefit for your beneficiaries, but the downside is that it ends after a specified time period. Our discussion focuses on term life funeral insurance policies.

Masterson explained funeral insurance is different from traditional life insurance in three ways: (1) a lower death benefit making it less expensive and a good option if you're on a fixed income; (2) it's easier to get this policy — no exam required; and (3) it is often purchased by people who are middle-aged or older.

Most people get life insurance to cover the mortgage, education, and other expenses so that their family can continue after they die. However, funeral insurance has a lower death benefit because it only covers funeral, burial, and final expense costs. Masterson noted that "the median price for a funeral is $8,500," and death benefits for funeral insurance are "often between $5,000 and $25,000." Some plans offer a higher death benefit.

How much does "final expense" insurance cost?

You have probably received mailers from Colonial Penn or Mutual of Omaha offering guaranteed life insurance. Those are essentially final expense policies.

For guaranteed life insurance, premium calculation depends on your age, gender, where you live, and coverage amount. Understand that there are limits on coverage amounts and it varies by insurance provider.

We found sample quotes for a 51-year-woman for $25,000 in coverage living in Illinois:

*Simplified issue policies included for price comparison

In the sample quotes above, we included quotes for AARP's simplified issue coverage for comparison. Although simplified issue life insurance does not require a medical exam, it does require a health questionnaire. If you don't want a medical exam, but can qualify for a simplified issue policy, it is generally a better deal because you can get more coverage for a cheaper premium.

Who should get "final expense" life insurance?

Final expense life insurance is for those who might be in poor health and can't qualify for traditional life insurance. It is usually marketed for those over 50 because there is a limit on the coverage amount. It is more expensive than other no medical exam life insurancepolicies.

If you are on a fixed income or are older, funeral insurance offers some coverage. If you qualify for a simplified issue no medical exam life insurance policy, it is generally better to apply for that instead, as you should be able to get more coverage and a cheaper premium. However, a simplified policy has a health questionnaire.

The advantage of funeral insurance as a supplemental policy is that it does not tie up funds available to your beneficiaries. A traditional life insurance policy will make beneficiaries wait until after the funeral home, cemetery, or crematory are paid before disbursing funds. This can take weeks before your beneficiary receives funds to manage regular household expenses. This could be a financial burden on your beneficiary especially if you were the sole provider.

The goal of having life insurance is to ease the burden on your loved ones after your loss. If you have a supplemental funeral policy, your loved ones can use the funeral policy to deal with final expenses and get an immediate disbursem*nt from your life insurance to handle the mortgage and education costs.

Talk to your financial advisor, financial planner and life insurance provider about adding funeral insurance to your coverage.