Final expense insurance is a whole life insurance policy with a small death benefit that is easier to qualify for [1]. Final expense insurance is also called “funeral insurance,” “burial insurance,” “simplified-issue whole life insurance,” or “modified whole life insurance.” These are all marketing terms the insurance industry uses to sell small whole life policies with a face amount♦, or death benefit, of $2,000 to $50,000.

 

There is no difference between final expense insurance and regular life insurance, other than insurers selling smaller policies to make them more affordable.

Final expense insurance has a death benefit designed to cover costs 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.

How Does Final Expense Insurance Work?

Suppose you are retired, no longer have life insurance through your employer, and do not have an individual life insurance policy. You also lack a comfortable savings cushion and are concerned about the financial burden you will leave your spouse and/or children when you die.

You contact a life insurance agent and begin the application process, which includes answering some basic health questions. The death benefit is excellent, but the premiums are unaffordable because of your age and health. Unfortunately, the insurer does not issue policies with a death benefit small enough to bring the premiums within your budget. At this point, you might give up and assume you cannot afford life insurance.

Final expense life insurance is designed to solve this problem. Insurance companies created these policies to absorb the risk of certain serious medical conditions, meaning most older adults can still obtain a policy despite poor health.

Smaller Death Benefits

The smaller death benefit of final expense insurance makes premiums more affordable, and the policy is permanent. No matter when you die, your heirs will receive the death benefit you want them to have, provided you have paid your premiums.

It may not cover everything, such as paying off a large mortgage, but final expense insurance will at least help loved ones pay bills directly related to your death—bills they will find harder to pay without your income or another source of funds.

Premiums

As with other types of life insurance, final expense policy premiums depend on your age and health and, where state law allows, may also depend on gender. The older and less healthy you are, the higher your rates will be for a given amount of coverage.

Men tend to pay higher rates than women because their average life expectancy is shorter. Depending on the insurer, you may also qualify for a lower rate if you do not use tobacco.

Special Types of Final Expense Insurance

Guaranteed Issue

Guaranteed-issue policies were created for applicants with serious health problems who qualify only for a policy requiring no medical questions, exam, or records. They always have a waiting period of two to three years before benefits are paid. If the insured dies during the waiting period, beneficiaries do not receive the death benefit; instead, they receive a refund of premiums plus interest.

 

Graded-Benefit Final Expense Insurance

Another type of final expense life insurance is a graded-benefit policy with a partial waiting period. It may pay 30% to 40% of the death benefit if the insured dies during the policy's first year and 70% to 80% if the insured dies during its second year. If the insured dies after those first two years, the policy would pay 100% of the death benefit.

If your health problems are not very serious, you may qualify for a graded-benefit policy instead of a guaranteed-issue policy.

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Sources and Links

1. Definition of Final Expense Insurance: https://www.iii.org
2. Life Insurance Basics: https://www.foresters.com

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