Dealing with the passing of a loved one can be an emotionally challenging experience. On top of that, it can also be financially draining, especially when it comes to funeral expenses. Fortunately, there are final expense insurance policies that are specifically designed to help alleviate some of the financial burden that your loved ones may face in the event of your passing.

But is final expense insurance a good deal?

The answer to this question will ultimately depend on your individual circumstances.  But before anyone should attempt to answer this question, they should first fully understand what a final expense insurance policy is and how it works.

Final expense insurance

Final expense insurance, also known as burial insurance or funeral insurance, is a type of life insurance policy designed to cover the costs of a policyholder’s funeral and other end-of-life expenses. These policies typically have a lower death benefit than traditional life insurance policies, usually ranging from a few thousand dollars to around $50,000.

In comparison to traditional life insurance coverage, final expense insurance policies tend to be easier to qualify for and can cost much less, making them more accessible options for individuals who may be on a tight budget.

For this reason, final expense insurance policies can provide peace of mind to a lot of individuals who may have thought qualifying for an affordable life insurance policy at their age or in their current health is impossible.

How does a final expense insurance policy differ from traditional coverage?

Final expense insurance policies differ from traditional life insurance policies in several ways:

1. Coverage amount: Final expense insurance policies typically have a lower coverage amount than traditional life insurance policies. Final expense insurance policies are meant to cover funeral and end-of-life expenses, whereas traditional life insurance policies may have larger coverage amounts to provide for beneficiaries.
2. Premiums: Final expense insurance policies usually have lower premiums than traditional life insurance policies. That said, however, we should point out that while these policies may be affordable, the amount of money you will be charged in comparison to the amount of coverage you will receive will be more expensive than a traditional life insurance policy.
3. Medical underwriting: Final expense insurance policies usually have less stringent medical underwriting requirements, which makes them easier to qualify for. In contrast, traditional life insurance policies often require a medical exam and may have stricter underwriting requirements.
4. Payout structure: Final expense insurance policies may have a graded payout structure, which means that the full death benefit is not payable until the policy has been active for a certain period of time, usually two or three years. Traditional life insurance policies usually have a full payout from the time the policy is issued (We’ll discuss this more later in our discussion).
5. Purpose: Final expense insurance policies are specifically designed to cover funeral and end-of-life expenses, while traditional life insurance policies can have a wider range of purposes, such as providing for a beneficiary’s future needs, covering outstanding debts, or financing a child’s education.

Overall, final expense insurance policies are a more specialized type of life insurance designed to cover specific end-of-life expenses. They may be more accessible and affordable for individuals looking for a more limited type of coverage.

Benefits of a final expense insurance policy

There are several benefits of a final expense insurance policy, including:

1. Affordable premiums: Final expense insurance policies typically have lower premiums than traditional life insurance policies, making it an affordable option for individuals on a tight budget.
2. Easy to qualify: Final expense insurance policies usually have minimal underwriting requirements, which means that individuals with pre-existing health conditions or advanced age can still qualify for coverage.
3. Peace of mind: By purchasing a final expense insurance policy, individuals can ensure that their loved ones are not left with the financial burden of paying for their funeral and other end-of-life expenses.
4. Fixed benefits: The death benefit is fixed, and will not decrease over time, as is the case with some types of life insurance policies.
5. No medical exam required: Many final expense insurance policies do not require a medical exam, which can relieve individuals who are uncomfortable with medical tests or may have difficulty qualifying for coverage due to a pre-existing health condition.

Disadvantages of a final expense policy

While there are several benefits of a final expense insurance policy, there are also some potential disadvantages to consider:

1. Lower coverage amount: Final expense insurance policies typically have a lower coverage amount than traditional life insurance policies, which means that the policy may not provide enough coverage for other expenses, such as outstanding debts, or provide for a beneficiary’s future needs.
2. Limited purpose: Final expense insurance policies are specifically designed to cover funeral and end-of-life expenses, which means they may not be suitable for individuals needing broader coverage.
3. Limited underwriting: While limited underwriting requirements can make it easier to qualify for a final expense insurance policy, it can also lead to higher premiums or exclusions for pre-existing conditions.
4. Premiums can be expensive: While final expense insurance policies are typically more affordable than traditional life insurance policies, they can still be relatively expensive, especially for older individuals or those with pre-existing conditions.
5. Graded payout structure: Some final expense insurance policies have a graded payout structure, which means that the full death benefit may not be payable until the policy has been active for a certain period of time. This could be a disadvantage if the policyholder passes away before the graded period ends.

Graded payout structure or Graded Death Benefit.

A graded death benefit is a clause written into all guaranteed issue final expense insurance policies, which limits when the policy begins to provide a death benefit to an insured for natural causes of death.

Most graded death benefits will last 2-3 years, depending upon the insurance carrier, and will only apply to natural causes of death.  Accidental causes of death will typically be immediately covered.  The duration of graded death benefits varies among insurance carriers but is generally around 2 to 3 years,

Graded death benefits are needed within guaranteed-issue life insurance policies to manage this risk, as they help protect the insurer from potential losses if the policyholder were to pass away shortly after purchasing the policy.

Who should consider purchasing a final expense policy?

Individuals most likely to benefit by purchasing a final expense insurance policy may include:

Seniors and Retirees: Final expense insurance is commonly purchased by seniors and retirees who want to ensure that their end-of-life expenses are taken care of without becoming a financial burden on their loved ones.

Those with Health Issues: Individuals with health issues may find it difficult to qualify for traditional life insurance policies.

Individuals with Limited Income and Savings: End-of-life expenses can be costly, and many individuals may not have enough savings or income to cover these expenses. A final expense policy can provide coverage at an affordable premium, making it an ideal option for those with limited income and savings.

Those Who Want to Leave a Legacy: For some, a final expense policy can be a way to leave a legacy and provide financial support for loved ones after they are gone. The payout from a final expense policy can cover funeral and burial costs, but any remaining funds can provide a financial cushion for beneficiaries.

Who probably doesn’t need to own a final expense insurance policy?

While final expense insurance can be a useful financial tool for many people, it may not be the best choice for everyone. Here are some individuals who may not benefit from purchasing a final expense insurance policy:

Individuals with Sufficient Savings: If you have enough savings to cover your end-of-life expenses, then you may not need a final expense policy. In this case, it may be more cost-effective to simply set aside funds for these expenses in a separate savings account.

Those Who Already Have Adequate Life Insurance Coverage: If you already have a life insurance policy that provides adequate coverage for your end-of-life expenses, then a final expense policy may not be necessary. However, if you want to leave a specific amount of money to cover your final expenses, then a final expense policy may still be a good option.

Those Who Have Limited Funds: If you are on a tight budget and have limited funds, a final expense policy may not be financially feasible. In this case, looking for other ways to cover end-of-life expenses may be more practical, such as setting up a payment plan with a funeral home.

Individuals Who Are Young and Healthy: Final expense policies are typically designed for older individuals and those with health issues. If you are young and healthy, you may not need a final expense policy at this time. However, it may still be a good idea to consider purchasing a traditional life insurance policy to provide financial security for your loved ones in the event of your untimely death.

So there you have it…

While final expense insurance can provide financial security and peace of mind for many people, it may not be the best option for everyone.  If you fall into any of the categories listed above, you may want to consider other options for covering end-of-life expenses. This is why, at the end of the day, you’re the only one that’s going to be able to say for sure whether or not a final expense policy is worth it.

We here at IBUSA just want to make sure that you know how much one might cost before you make that decision on your own.  After all, if a final expense policy were free, we’re pretty sure you’d want to have one, which implies that they do have some value, how much though will likely depend on cost and your particular situation.