What Is Final Expense Insurance?

Final expense insurance is a whole life insurance policy that has a small death benefit and is easy to get approved for. Final expense insurance is also called funeral insurance, burial insurance, simplified issue whole life insurance, or modified whole life insurance. All relate to small whole life policies with a face value (and death benefit) of $2,000 to $35,000

There is no difference between final expense insurance and life insurance, other than the fact that insurers sell the smaller final expense insurance policies to make it more affordable, says , a financial planner and insurance fraud expert in Gibsonia, Pa. Final expense insurance has a death benefit designed to cover expenses such as a funeral or memorial service, embalming and a casket, or cremation. However, beneficiaries can use the death benefit for any purpose, from paying property taxes to taking a vacation.

“They market the final expense insurance to people who are older and starting to think about their funeral costs, and they make it look like they need to do it in order to take care of their family,” says Sabo. 

“Some people already own existing life insurance policies that can go toward paying final expenses, so do they really need a new policy?” Another situation where final expense insurance may be redundant is if someone has already prepaid their funeral expenses, he adds.

Understanding Final Expense Insurance

Final expense insurance is a type of whole life insurance. Once you have your policy, the premiums cannot increase, and the death benefit cannot decrease. Unlike a term policy, a whole life policy does not expire when you reach a certain age. A whole life policy also accumulates cash value that you can borrow against during your lifetime. Any loans that are unpaid when you die will reduce how much money your beneficiaries receive. When you apply for final expense insurance, you will not have to deal with a medical exam or let the insurance company access your medical records. However, you will have to answer some health questions. Because of the health questions, not everyone will qualify for a policy with coverage that begins on day one. As with any type of life insurance, the premiums for final expense insurance depend on your age and health; where allowed by state law, they may also depend on your gender.

The older and less healthy you are, the higher your rates will be for a given amount of insurance. Men tend to pay higher rates than women because of their shorter average life expectancy. And, depending on the insurer, you may qualify for a lower rate if you do not use tobacco.

Some insurance companies issue final expense policies to people from birth to age 85. However, depending on the policy and the insurer, there may be a minimum age (such as 45) and maximum age (such as 85) at which you can apply. The largest death benefit you can select may be smaller the older you are. Policies might go up to $50,000 as long as you’re younger than 55 but only go up to $25,000 once you turn 76. Some insurers offer the same maximum death benefit to all applicants regardless of age.

How Final Expense Insurance Works

Let’s say you’re retired, no longer have life insurance through your employer, and don’t have an individual life insurance policy. Neither do you have a nest egg large enough to ease the financial burden on your spouse and/or kids when you die. You're considering a new life insurance policy. So you contact a life insurance agent and start the application process. This includes answering a few basic questions about your health. The death benefit is what you're looking for, but the premiums are too expensive because of your age and health. Unfortunately, the insurance company doesn't issue policies with a death benefit that’s small enough to make the insurance premiums fit your budget. At this point you might give up, assuming that you can’t afford life insurance. Final expense life insurance is designed to solve this problem. “The insurance companies built these policies to absorb the risk of some serious medical issues,” says Anthony Martin, CEO of , a final expense life insurance brokerage company. “This means that most seniors, despite poor health, can still secure a policy.”

Smaller Death Benefits

The smaller death benefit of final expense insurance makes the premiums more affordable, as Richard Sabo notes above. What's more, the policy is permanent. No matter when you die, your heirs will get the death benefit you want them to have, as long as you paid the premiums. Final expense insurance may not be enough to cover everything but it can help your loved ones pay at least some bills directly. These may be bills they’d otherwise have a hard time handling.

Benefits of Final Expense Insurance

• Final expense insurance can relieve the worries of your family members because it provides them with money they may need to pay expenses related to your death.
• It can be a welcome choice for people who can't get any other insurance due to their age or health but want to ease some financial burdens for loved ones.
• It's affordable due to the lower coverage amount.
• This type of insurance policy builds a cash value over time, so you may borrow from it or use it as collateral during your lifetime.
• The premium amount never changes, which can be helpful for budgeting.
• Coverage is guaranteed.
• The policy cannot be canceled, even if your health deteriorates.
• The death benefit, while aimed at final expenses, can be used for whatever a beneficiary decides is best—a legacy nest egg, mortgage payments, credit card debt, and more.

Special Considerations

Guaranteed Issue Final Expense Insurance

A second type of final expense policy is called guaranteed issue. Applicants with serious health issues will only qualify for a policy that does not require medical questions, an exam, or medical records. These guaranteed issue policies always have a two- to three-year waiting period before benefits will be paid.

If the insured dies during the waiting period, the beneficiaries will not receive the policy’s death benefit. They will, however, receive a return of the premiums the policyholder paid—plus interest, usually at an annual rate of 10%. For more on guaranteed issue policies, including how life insurance companies can afford to offer them, read our piece on guaranteed issue life insurance.

Graded Benefit Final Expense Insurance

There’s a third type of final expense insurance. It's a graded benefit policy with a partial waiting period. This type of policy might pay 30% to 40% of the death benefit if the insured dies during the first year the policy is in force. It might pay 70% to 80% if the insured dies during the second year the policy is in force. If the insured dies after those first two years, then the policy would pay out 100% of the death benefit.

If you have health conditions that are only semi-serious, you might qualify for a graded benefit policy instead of a guaranteed issue policy. These health conditions include entering remission from cancer in the last 24 months, congestive heart failure, or treatment for alcohol or drug abuse in the last 24 months.

By comparison, a more serious condition, such as a terminal illness, currently being in cancer treatment, or having had heart surgery in the last 12 months, would only allow you to qualify for a guaranteed issue policy. With that policy, you’ll have to wait at least two years for any coverage.

No single insurer offers the best final expense insurance solution, says Martin. It’s important to get offers from multiple insurance companies to find the ones that view your health most favorably. Those companies will likely offer you the best rates. Trying to qualify for a policy with an approval process that only asks health questions is another way to keep rates down.

Even if you have a less-than-ideal answer to a health question, it does not mean every company will reject you. Some may offer you immediate coverage with higher premiums, a graded benefit policy, or a guaranteed issue policy.

Do You Need Final Expense Insurance?

If you have substantial savings, investments, and regular life insurance, then you probably don't need final expense insurance. However, given the rising costs of funeral and related expenses, you may simply want to consider final expense insurance to guarantee that your family has what it needs to pay bills associated with your passing. Final expense insurance can be an option if you can't afford to buy regular insurance that could alleviate the financial burden your death may place on others. Bear in mind, that even if your estate has enough money, a final settlement sometimes can take months. The money might not be available in time, leaving loved ones in a financial bind.

While Social Security offers a death benefit, it's just $255 (if you qualify for it).

Final expense insurance could give your beneficiary fast access to thousands of needed dollars at a difficult time.

Costs Related to Final Expenses

Here are just a few of the costs that people may face after the death of a family member:

• Funeral home service fee (required): $2,300
• Transport of departed to funeral home: $350
• Embalming: $775
• Preparations, such as makeup and hair styling: $275
• Facilities and staff needed for a viewing: $450
• Facilities and staff needed for a funeral: $515
• Hearse: $350
  

Pros and Cons of Final Expense Insurance

The table below highlights the pros and cons of final expense insurance.

Example of Final Expense Insurance

Using Choice Mutual’s online quote tool, we found that for a 68-year-old man in California, a $25,000 final expense insurance policy with health questions and immediate coverage might cost $156 to $180 per month, while one without health questions (a guaranteed issue policy with a waiting period) might cost $234 to $345 per month.

Let’s say that man has congestive heart failure and only qualifies for a guaranteed issue policy with a two-year waiting period. If he buys the most expensive policy with the $345 monthly premium, after two years he will have paid $8,280 in premiums. His beneficiaries will come out ahead if he dies between the first day of year three (when the waiting period ends) and the end of year six, when the premiums paid will be about equal to the death benefit. People who are healthy should not buy guaranteed issue policies because they will pay an unnecessarily higher price and coverage will not start on day one. They may not even want to buy a final expense policy, according to Sabo. The caveat is that you have to be healthy enough to qualify. Sabo says that a 68-year-old non-smoking male in California could get a $25,000 guaranteed universal life policy for about $88 per month. This policy would expire at age 100, so it does provide less coverage than a whole life policy. You’ll want to take your own health and budget into account when deciding whether a trade-off like this is worth it.

Guaranteed universal life, like whole life, does not expire as long as you buy a policy that covers the rest of your life. You can buy a policy that will cover you to age 121 for maximum protection, or to age 100, or to a younger age if you’re trying to save money and don’t need coverage after, say, age 90. It costs less than final expense insurance because it doesn’t have a cash value component.

When Regular Life Insurance Is Better

“If you can afford to buy a larger policy to meet company minimum death benefits, then you are better off buying regular life insurance,” says Sabo. Martin agrees. He says that most insurance carriers require a minimum face value of $50,000 to $100,000 on traditional whole life or term insurance. The higher face amounts will lead to higher premiums than some people can afford, even though the cost per $1,000 of coverage is less than that of a final expense policy. He said that many of his clients who could easily qualify for a traditional whole or term policy choose final expense because they only want $20,000 or $30,000 of coverage. Furthermore, claims on these policies are often paid faster than claims on larger policies. Sabo explains that many life insurance companies have raised their minimum death benefits to $50,000 because it is not worth the time to process the application and do all of the underwriting for smaller policies. “Some companies specialize in final expense insurance and have created a system and underwriting to sell smaller policies and make smaller profits, but they are doing volume,” Sabo says.

Frequently Asked Questions

The Bottom Line

Final expense insurance can provide a relatively small but meaningful payout to loved ones after your death. It can be used to pay for the various, traditional services they wish to have, such as a funeral or memorial service. Financial expense insurance is easy to qualify for and affordable. Coverage amounts range from $2,000 up to $35,000. It isn't a huge amount but the benefit can be a godsend for family members without the financial wherewithal to meet the expenses associated with your passing. Moreover, if they have the needed funds to meet obligations, the benefit can be used in any other way the beneficiary chooses.