What Is Final Expense Insurance?

Planning for the future, especially when it comes to making sure your loved ones are protected financially, is the primary reason we spend time developing a solid financial plan. One tool many people use is final expense insurance. This article will walk you through the basics and help you understand what final expense insurance is, how it works, and whether it might be a good fit for you.

Final expense insurance defined

Final expense insurance is a type of life insurance specifically designed to cover end-of-life costs. Unlike traditional life insurance policies, which are geared toward providing large sums for many different purposes, final expense insurance focuses on covering funeral expenses, including burial or cremation costs, and other immediate financial needs after someone passes away.

These policies generally offer smaller coverage amounts, typically ranging between $5,000 and $25,000 but sometimes up to $50,000. The idea is to ease the financial burden on your loved ones during an emotionally difficult time, helping them avoid the stress of scrambling for funds to pay for a funeral or other final arrangements.

What does final expense insurance cover?

Although final expense insurance can be used for any purpose, it is meant to cover costs related to end-of-life expenses. These can include:

• Funeral services: Including the cost of a casket, flowers, and a venue for the service.
• Burial or cremation: The costs associated with your chosen method of disposition.
• Medical bills: Any outstanding medical expenses that weren’t covered by health insurance.
• Legal fees: If your estate requires settling, the policy can help cover costs associated with probate, taxes due, etc.

Beneficiaries may be able to use leftover funds for other needs, like paying off small debts or handling immediate living expenses.

How does it work?

Final expense insurance works much the same as other life insurance policies. You pay monthly premiums to keep the policy active. Then, upon your death, the insurance company pays the death benefit directly to your named beneficiary. It’s simple and straightforward.

One of the major advantages of final expense insurance is its simplicity. There’s no complicated payout process, and the funds are often made available quickly, sometimes in less than a week. This allows your beneficiary to use the money to cover end-of-life costs or other immediate expenses without having to make payments out of their own pocket.

How much does it cost per month?

The cost of final expense insurance varies depending on several factors, including:

• Your age: Premiums are generally lower if you purchase the policy when you’re younger.
• Your health: Many policies don’t require a medical exam, but your health history can still influence the cost.
• Coverage amount: The larger the death benefit, the higher the premium.
• Policy type: Some policies have guaranteed premiums while others might increase over time.

Monthly premiums will vary widely depending on these factors, so it’s smart to get quotes from multiple insurers to find a policy that fits your budget and needs.

Pros and cons

Like any financial product, final expense insurance has its advantages and disadvantages.

Pros:

• Affordable premiums: Compared to larger life insurance policies, final expense insurance is more budget-friendly.
• Simple application process: Many policies don’t require a medical exam or have a limited number of health questions.
• Quick payouts: Beneficiaries can often access funds quickly to cover urgent costs, sometimes in a matter of days.
• Targeted purpose: It’s designed to cover end-of-life expenses, reducing financial stress for your loved ones.

Cons:

• Limited coverage: The smaller death benefit might not cover all financial needs, such as large debts (mortgage, college costs, etc.) or long-term support for dependents.
• Higher costs for older applicants: Waiting until later in life to purchase a policy can lead to significantly higher premiums.
• Not always necessary: If you already have a life insurance policy with a large death benefit, this type of coverage might not be needed.

How is final expense insurance different from life insurance?

While final expense insurance is a form of life insurance, it’s distinct in its purpose. Traditional life insurance policies often provide larger death benefits intended to replace income, pay off large debts, or fund future needs like education. Depending on the type of policy, some people may be able to use their life insurance to pay for senior care during their lifetime. 

Final expense insurance, on the other hand, focuses on covering immediate and specific end-of-life costs, such as funeral and burial costs (although as mentioned, beneficiaries can use the money however they want). It’s ideal for individuals who might not need a large policy but want to ensure their family isn’t burdened with funeral expenses.

Is final expense insurance worth it?

Whether final expense insurance is worth it depends on your unique situation. If you don’t have savings or another life insurance policy in place to cover funeral costs, this type of insurance can be a valuable tool.

On the other hand, if you have a financial plan or a larger life insurance policy in place, it might not be necessary. Consider your overall financial situation, your family’s needs, and how you want to allocate resources when making this decision.

How to get final expense insurance

Getting final expense insurance is typically straightforward and shouldn’t take you much time. Here are the steps you can take:

1. Research providers: Look for insurance companies that offer final expense policies. Compare their offerings, including coverage amounts, premiums, and customer reviews.
2. Get quotes: Reach out to multiple insurers to get an idea of how much coverage will cost you. Many insurance websites can provide you with quotes from multiple insurers.
3. Review the policy details: Make sure you understand what’s covered, when death benefits are payable, if there are any exclusions, and whether premiums are guaranteed not to increase.
4. Apply for coverage: Many policies have simple online applications that don’t require a medical exam.
5. Name a beneficiary: Choose someone you trust to handle the funds appropriately.

Final thoughts

Final expense insurance is a practical and affordable way to ensure your loved ones aren’t burdened with financial stress after you’re gone. By understanding how it works, what it covers, and how to choose a policy, you can find the option that best aligns with your financial goals and your family’s needs. Whether owning final expense insurance is the right choice for you depends on your personal situation, but it’s worth considering as part of your overall financial planning.

This information is for educational purposes and is not legal, financial, tax, or investment advice. It should not be substituted for information from professionals authorized to practice in your area. You should always consult a suitably qualified professional regarding your specific situation.