Final expense insurance also referred to as “funeral” or “burial” insurance, is a life insurance policy that is designated for paying the final expenses of the insured that typically accumulate leading up to and immediately after the insured’s death.
It is no secret to anyone living in the United States that there is a cost for burying or cremating a family member or friend after they have passed. You are generally never allowed to simply bury old Uncle Fred in your backyard in the subdivision you live in. There are rules and laws that govern the disposition of a dead person.
What this means is that unless you prepay for the costs associated with your funeral or cremation, you are going to pass those costs on to your surviving loved ones when it’s your time to go. If you love and care for your family and friends, the last thing you should do is leave them with the significant costs of a funeral or cremation.
One of the most significant expenses related to dying is the cost of a funeral. Unfortunately, funerals are not affected by technology like many other services. They cost more today than ever, and the price will continue to go up because a funeral service involves labor and land.
Other expenses that are typically passed on to surviving loved ones are unpaid medical or nursing home expenses, mortgages, and any debt that was guaranteed by the insured and another family member or friend. Even the cost of cremation can get expensive when you include a memorial service or choose to have the urn buried in a cemetery.
According to Parting, a well respected funeral home comparison business, the cost of a moderately priced funeral will cost about $8,000 to $10,000 and will typically not include the memorial service. You can save quite a bit by going the cremation route, but it can still end up costing about $2,000 to $3,000 with a memorial service not included.
It costs someone money when you die, so why pass the debt on to surviving loved ones or friends when you can easily prepay these imminent costs with an affordable final expense insurance policy?
For many people that already have life insurance, the insurance they’ve purchased is term insurance, which is not permanent. This means you could easily outlive your policy and be unable to afford to renew it or buy life insurance to replace it.
Many people get their life insurance through work and don’t understand that if they leave, get fired, or retire; their life insurance policy does not go with them. Here again, it’s likely that the cost of buying a new policy is unaffordable or you may not qualify because of health issues.
There is also a large group of people who believe their church will take care of their funeral when they die. This may or may not be true, but even if it is, do you really want to pass on the cost of your funeral to the church members?
Finally, there is that group of people who are not married and have no children, so they figure why carry any life insurance? The answer is quite simple, if you expect to be properly buried (or cremated) when you die, someone will have to pay for it.
Final expense insurance is the most affordable method to prepay your final expenses. The insurance used most often is whole life insurance which offers the guarantees you’ll prefer for a final expense product. Whole life insurance is guaranteed for a lifetime as long as the periodic premium is paid. The policy cannot be canceled by the insurer except for non-payment of premium. The monthly premium remains the same for the life of the policy and will not change because of age or illness.
Since final expense insurance is typically purchased with a lower death benefit than normal life insurance, most people find the monthly premium very affordable, and the policy can build cash value over time, which the insured can access at some point in time. The final expense policy is also considered a “simple issue policy” which means the company rarely requires a medical exam and therefore the policy is issued quickly compared to other larger insurance policies.
Most insurance companies that offer final expense insurance will have two different products available:
The waiting period is usually two to three years. If you die from natural causes during the waiting period, your insurance company will not pay the death benefit to your beneficiary. They would instead receive an amount equal to all the premiums you have paid in, and in some cases, an additional amount of 5 to 10 percent. If, however, you die within the waiting period as a result of an accident, the insurance company will typically pay the full death benefit from day one.
All life insurance rates are based primarily on your age and your health. Knowing this, it would be advantageous to purchase your final expense insurance when you are younger to assure you are getting the lowest rate possible. The longer you put off taking out the policy, the higher the rate you will pay.
For example, the monthly rate for a 45-year-old non-smoker for a $20,000 death benefit would be about $45. If that same person were to wait until age 65, the rate would then be about $108 per month. In this example, waiting until age 65 would end up costing you an additional $720 per year.
You should also consider health issues. It’s certainly more likely that you will have better health when you’re 45 years-old than when you are 65-years-old. Serious health issues could force you to purchase a guaranteed issue policy which is more expensive than a traditional one.