Final expense insurance
Facing your own mortality can be difficult, but it’s important to discuss end of life decisions with your friends and family. There are many things to consider when preparing for this time, from medical choices to inheritance, and funerals.
While medical expenses usually come to mind in these cases, many families are often taken by surprise by the cost of the funeral. Memorial services, coffins, and burial or cremation costs have increased at a nearly exponential rate over the last 50 years, due to an inflation of overhead costs and changes in funeral practices by the public at large. While many funerals used to be held within family homes or by locally owned funeral parlors, a shift in sanitation and privacy norms and a move to larger, corporate-owned parlors mean higher costs for grieving families.
A study by the National Funeral Directors Association found that an average funeral costs between $7,350 and $8,750, depending on region and whether the cemetery you choose requires a vault. This estimate covers caskets, urns, and burial plots. Still, it does NOT include the cost of flowers, obituary announcement, monument and marker costs, or the cash advance fees that are usually required by third-party vendors.
These prices aren’t expected to drop, either. Some insurance experts expect that they will continue to increase and that the average cost of a funeral in 2030 could cost over $15,000.
Making financial decisions while grieving can be difficult. The addition of financial burdens and the feelings of loss can lead your loved ones to be taken advantage of or to take out loans and go into debt to see to a proper burial.
The best way to protect your family in the event of your death is to look into final expense insurance. In this article, we will discuss what final expense insurance is, how it works, different policies, and costs associated with the insurance.
What Is Final Expense Insurance?
Also known as Funeral Insurance or Burial Insurance, Final Expense Insurance is a type of life insurance policy that can be bought directly from a life insurance company, by itself or in conjunction with another policy.
This specialized life insurance policy has a low face value, usually ranging between $5,000 and $25,000. This policy gives a much smaller payout than a traditional life insurance plan. It is a good option when you have a small budget but are trying to protect your loved ones after death, due to it having a smaller premium. If your loved ones will have other financial obligations following your death, such as education expenses and mortgages, it might be better to purchase a larger, standard policy, as the payouts from these plans can also be used to cover end of life expenses.
You can purchase final expense insurance between the ages of 45 and 85. The earlier you purchase the lower your policy’s cost is likely to be due to the likelihood of you paying more in premiums over time.
There are pros and cons to funeral insurance. These policies tend to have less expensive premiums than other policies and can be quickly and easily purchased online or over the phone. Their coverage is limited, though, and there is usually a two-year waiting period before the policy takes effect. While cheap short term, these policies can end up being more expensive than other policies in the long term, depending on how long you are paying for the policy.
How Does Final Expense Insurance Work?
Final expense insurance works very similarly to most other insurance policies. When purchasing the plan or during the life of the policy, you can choose one or multiple beneficiaries who will be eligible to receive your policy benefits after your death. When you die, your beneficiaries can make a claim to the insurer, who will then pay out the benefit to them.
Once the money is in the hands of your beneficiary, it is up to them how to use the money. While you can direct them to carry out specific wishes after your death, they can legally use the money for anything they wish, like any other life insurance payout. If the cost of your funeral is below the cost that your insurer paid out, your beneficiaries will keep the difference. For example, if you take out a $12,000 policy, and your funeral costs $8,000, your beneficiary will get to keep the extra $4,000 for whatever they wish.
Due to these factors, it’s important to choose a beneficiary or beneficiaries that you can trust to carry out your wishes and use your benefits wisely. This is the same for other life insurance policies, the funds can be used legally for anything the beneficiary decides.
Are There Different Types Of Policies?
Final Expense Insurance policies come in many different types. These different types will range in payout amounts, expiration dates, and percentage of benefit payout.
Burial and Funeral insurance can be purchased as a “term life” type insurance policy, covering you for a specific period or until you reach a specified age outlined in the policy when it’s created, or as a “whole life” type insurance policy, which will cover you for the rest of your life. Term Life Final Expense Insurance usually has a higher death benefit and is cheaper than Whole Life Final Expense Insurance, but it is possible for you to outlive your policy. If you outlive your policy, it will expire, and your beneficiaries will not get any insurance payout.
These policies can also operate as a Simplified Issue Policy or a Guaranteed Issue Policy. With a Simplified Issue Policy, your insurance company will ask you a handful of medical questions that will affect the benefits they offer you. Usually, you will not have to take a full medical exam for Simplified Issue Policies. For Guaranteed Issue Policies, you will not have to disclose any medical concerns or statuses.
If you have serious health conditions when you apply for your policy, your insurer may write up your policy to include a Graded Death Benefit clause. This clause means that if you die within the first few years of the policy’s implementation, your beneficiaries would not receive the full face value of your policy.
The types of policies and what they cover can vary greatly from provider to provider. We encourage you to shop around and compare insurance options between at least three different companies that offer final expense insurance before you make a decision and to compare the details of what each company offers carefully.
How Much Will It Cost?
The cost of your Final Expense Insurance will depend on multiple different factors. These factors include the age at which you purchase your policy, who you purchase your policy through, whether you choose a term life or whole life policy and the amount of coverage you end up with.
On average, a $10,000 policy will cost around $2/day. Some plans, depending on your age, can cost as little as $10/month. Some experts estimate that tax-free savings built into these plans over time could add up to $35,000.
Some financial experts have laid out a way to estimate the total cost that your Burial Insurance should cover. First, take your household’s typical monthly expenses and multiply it by 3. Then, add the average cost of funeral expenses in your area. For example, if you pay $2,000 a month on loan payments, utilities, insurance fees, and food costs, and an average funeral costs $8,000 in your area, you will need $15,000 in Final Expense insurance for your family to be comfortable after your death. Using the number you come up with, you can shop effectively for insurance policies, and find out how much you will be paying per month to keep your family secure. Get free life insurance quotes at General today.