No one likes to think about their own funeral. But we’ve all heard that they can be expensive. And we don’t want our loved ones stressed by big expenses while mourning. We want to ease their burdens, even after we’re gone.
Final expense life insurance is a type of permanent life insurance whose proceeds may be used to pay for your funeral and end-of-life expenses after your passing. It’s more affordable than other types of permanent insurance, but it typically offers lower coverage levels ($25,000 to $50,000 max) than traditional types of life insurance and many people can get a much higher coverage level, for the same or lower price, with term life insurance.
Here we’ll walk you through the details you need to know to make the best decision for your family.
Final expense life insurance versus term life insurance
Dying can be expensive. The median cost of a funeral in the U.S. is more than $7,300, according to the National Funeral Director’s Association. Add in the cost of end-of-life medical care and your passing could quickly put your family in a stretched financial position.
These end-of-life costs are what final expense life insurance is meant to cover. Often, it’s discussed as an alternative to term life insurance. Many insurance brokers or salespeople even offer both.
So, what’s the difference?
Final expense life insurance is a type of permanent insurance which means it remains in effect for as long as premiums are paid – that pays a lump sum when you pass to help your beneficiaries cover funeral expenses and other end-of-life expenses. Because of lower benefit levels than term or other types of permanent insurance (typically only $5,000 to $25,000), most final expense policies are sold without a medical exam and are relatively affordable compared to other types of permanent insurance. Term life insurance, on the other hand, is in effect for a set amount of time – the “term.” These policies are medically underwritten, meaning in many cases you’ll need a short medical exam, and offer higher coverage levels. Haven Life, for example, offers policies up to $3 million. Term life can help your loved ones pay for funeral expenses. But it can also help your family cover other important expenses like the mortgage, day-to-day bills and college tuition. A term life policy can reduce the impact of the loss of your income.
In many cases, especially for healthy, younger individuals, term life is a better financial option than final expense life insurance. Rates for final expense insurance are relatively high in light of the coverage levels, and those levels often don’t cover all of a family’s financial needs.
What does final expense life insurance cover?
Final expense life insurance is meant to cover funeral and burial costs, medical bills, credit card debt, and other end-of-life expenses. But your beneficiaries don’t have to use it that way.
The final expense life insurance company won’t be asking for receipts showing how your family uses the proceeds. The benefit will be paid out in a lump sum to be used as needed by your family.
If you want to ensure that the policy is used for funeral expenses, some funeral homes will allow you to list them as the primary beneficiary on a final expense policy. They will receive the funds directly to pay for your funeral and burial.
Cost of final expense life insurance
On average, final expense insurance policies offer $10,000 to $20,000 in coverage and cost $30 to $70 a month, depending on your gender, health and age. Younger applicants may qualify for lower rates, but applicants over 70 can pay $70 to $180 a month.
Comparatively, a 40-year-old woman in excellent health could qualify for a 20-year, $250,000 Haven term policy, issued by MassMutual, for less than $20 per month. A 30-year policy would increase the premium to about $32 per month and cover her until she’s 70 years old.
In many cases, term life can offer 10 to 20 times the coverage of final expense life insurance for a similar cost or less.
Alternatives to final expense life insurance
If covering funeral and end-of-life expenses is your biggest concern, final expense life insurance isn’t your only option. Before making a decision, consider these alternatives.
Term life insurance
Term life insurance offers high coverage levels at affordable prices.
If you’re young and healthy, term life insurance can better protect your family in the years they need it most – when your children are still financially dependent, while you and your spouse build up retirement funds.
While term life doesn’t last forever like permanent insurance, if you’re young and building assets, your family may be less likely to feel financially stretched by a $7,000 to $10,000 funeral if you die in old age. That’s especially true if you have retirement or other funds set aside that can help to cover the cost.
Pre-need insurance or pre-need funeral insurance is a unique type of permanent final expense life insurance offered by some funeral homes and funeral directors.
Instead of your final expense policy paying out a lump sum to your loved ones, pre-need insurance covers the cost of a predetermined funeral and cremation or burial. You do the planning with the funeral home ahead of time to ensure you get the funeral you wish and save your loved ones time and energy planning after your passing.
This insurance is often cheaper than final expense insurance, but isn’t always as straightforward as it sounds. Over 10, 20 or even 30 or more years, a lot can change. The funeral home you secure your policy with could close or change ownership. Offered services could change. And these shifts could create confusion for your loved ones.
While $7,000 to $10,000 is a lot of money, if you’re young and have years to save or are a senior who is well prepared for retirement, it is an amount you could self-fund.
Simply layout your wishes for your loved ones and let them know where to take the money from to pay for the funeral. Your money can stay invested with your other assets, to continue to build your family’s wealth, but there if you need it.
When is final expense life insurance a good choice?
As a life insurance policy that isn’t medically underwritten, final expense life insurance is fast and easy to acquire. And while the lack of medical exam does result in higher costs compared to coverage levels, rates are generally affordable and are the right choice for some individuals.
A final expense life insurance policy may be a better fit for you if:
- You have been declined life insurance due to health reasons
- You’re a senior who doesn’t qualify for term life insurance
- You’re a child caring for an aging parent without a way to pay for their funeral expenses; you can take out a final expense life insurance policy on your parents.
If you want to make sure you’re making the right choice, always cost compare final expense insurance with other options, like term life insurance. Take time to understand how much coverage your family would really need if you passed, what you’re getting, and whether you’re eligible for a term policy.
Choose the right life insurance coverage for you
If you’re purchasing life insurance to help financially protect your family, you want to provide the level of coverage they’ll need. And with most final expense policies maxing out at $25,000 to $50,000, this type of insurance may leave them short.
Final expense life insurance could be a good option if you’re a senior or are unable to qualify for medical underwriting through a term life insurance policy. It may also be a good option for adult children caring for aging parents who want to reduce the stress of their parent’s eventual funeral costs.
If you are healthy and have a clear medical history, then you’ll typically get much better value with a medically underwritten term life insurance policy. It’s easy to get a rate quote, and you can buy the policy online when you’re ready.
Get your family the protection they need, so that funeral expenses and other costs aren’t a burden during a difficult time for your loved ones.
Chelsea Brennan is the founder of Smart Money Mamas, a personal finance blog that focuses on family finance, investing, and reducing money stress. Chelsea is an ex-hedge fund investor whose work has appeared in a wide array of publications, including Forbes, Business Insider, and more.