Pros and Cons of Final Expense Insurance
Key Takeaways
- Final expense insurance provides a smaller payout than other types of life insurance to cover funeral costs, medical bills, and outstanding debts.
- Policies are easier to obtain than traditional life insurance, often requiring no medical exam.
- Premiums remain fixed, but costs can increase with age, and guaranteed issue policies may have a two-year waiting period before full coverage applies.
- Beneficiaries can use the payout for any purpose, not just funeral expenses, making it essential to choose a trusted beneficiary.
Final expense insurance can help your loved ones pay for funeral expenses, medical bills, and outstanding debt after your death. These policies tend to be more accessible and affordable to older adults, people with pre-existing conditions, and those with limited budgets. However, final expense insurance offers lower payouts than other types of life insurance.
This article explores the pros and cons of final expense insurance, and how to determine if it’s the right type of policy for you.
Why Buy Final Expense Insurance?
Final expense insurance, also called funeral or burial insurance, alleviates the financial burden of end-of-life care. As the name suggests, it’s designed to cover funeral, burial, or cremation costs. These fees can add up quickly: In the U.S., the median cost of a funeral with a casket and burial was $8,300 in 2023, while a funeral with cremation and an urn cost $6,280.
Family members may be left with other expenses, too. Beyond funeral costs, they could owe outstanding bills from hospice care, legal and accounting fees, or other debt. They might have to travel or take time off work, resulting in lost wages. Combined with funeral expenses, their unexpected costs could be substantial.
Planning and paying for end-of-life logistics can be especially challenging while grieving. For some people, final expense insurance is a valuable gift that helps their loved ones cope with end-of-life logistics during an emotional time.
Secure your family’s future with Final Expense Life Insurance.
Contact GoHealth to find coverage that fits your needs.
Mon – Fri, 8 a.m. – 6 p.m. CT | TTY: 711
How Final Expense Insurance Works
Final expense insurance is a form of permanent life insurance. These policies last until your death as long as you keep up with premium payments. Then, your beneficiaries receive a death benefit. Final expense plans may also build cash value, which you can withdraw from or borrow against during your lifetime.
Final expense insurance policies are intended to go toward end-of-life expenses once you pass. But ultimately, the beneficiary decides how to use the money. They can pay for any expenses, not just funeral arrangements. However, most final expense plans won’t cover much more than these intended expenses. Policies range from $2,000-$50,000, but most payouts are between $10,000 and $20,000.
What Is Guaranteed Issue Final Expense Insurance?
Many permanent life insurance plans require you to complete a health screening and medical underwriting process. Final expense policies operate differently. You don’t need to complete a medical exam, but you may need to answer a health questionnaire and meet a certain health status. In a standard process, your policy will be effective immediately.
If you don’t want to answer any health-related questions or you don’t qualify for a standard policy, you have another option: guaranteed issue final expense insurance. You can purchase this policy immediately, though it typically has a higher premium.
One drawback, though, is the waiting period. Insurance companies will not pay a death benefit if you die within two years of purchasing the policy. Instead, your beneficiaries will receive a refund on your premiums plus interest.
Pros of Final Expense Insurance
Final expense insurance suits consumers in many stages of life. Consider some of the benefits:
- May be less expensive than other policy types. Depending on your age, location, and health status, final expense insurance may be the most affordable option.
- No medical underwriting. Since these policies are less extensive than other types of life insurance, they usually don’t require a medical exam.
- Option for guaranteed issue. If you have pre-existing conditions or other health issues that can disqualify you from other life insurance types, you can apply for a guaranteed issue policy.
- Fixed premium. Your monthly, quarterly, or annual premiums will stay steady throughout the duration of the policy.
- Guaranteed payout. Unlike term insurance, final expense policies don’t expire. As long as you pay your premiums, your beneficiaries will receive the death benefit.
Cons of Final Expense Insurance
Like all life insurance plans, final expense insurance has drawbacks. Make sure you evaluate all aspects before committing to a plan.
- Lower payouts. Final expense life insurance policies often have a death benefit between $10,000 and $20,000, which is lower than other types of life insurance.
- May have a waiting period. If you opt for a guaranteed issue plan, your policy often will not provide coverage until two years after you begin paying premiums.
- More expensive premiums with age. As you age, insurance policies become more expensive. Final expense insurance may still be the most affordable option, but premiums tend to increase if you purchase a policy later in life.
- Beneficiary decides how to use the money. Your beneficiaries can use the money however they want. Make sure to document your final wishes and choose a beneficiary you trust.
Should You Get Final Expense Insurance?
Only you can decide whether the benefits of final expense insurance outweigh the drawbacks. For many older adults, final expense insurance is a budget-friendly and accessible option, offering steady premiums and a guaranteed payout. Later in life, getting a standard permanent policy may be prohibitively expensive, and term policies expire.
This type of policy also suits people with health conditions, who may not qualify for other life insurance. With a guaranteed issue final expense insurance policy, they can support their families without completing a medical exam or meeting any health requirements.
However, final expense insurance isn’t the right option for everyone. Some people opt for preneed insurance instead, prepaying their funeral expenses to a specific funeral home. This option may be more affordable for older adults who cannot afford a life insurance policy. It also ensures the money is spent on approved funeral expenses.
Before committing to a plan, get quotes from multiple insurers. Younger adults may actually find a more comprehensive permanent policy for a lower premium.
Other Options to Consider
- Term life insurance: Term life insurance lasts for a specific period of time, usually between five and 35 years. If you outlive the term, the insurer doesn’t pay anything. These policies are best for those seeking temporary coverage, such as those with young children or with a mortgage.
- Whole life insurance: Whole or permanent life insurance offers larger payouts and more cash value, which you can access during your lifetime. You can designate a certain amount of the death benefit to go toward funeral expenses. However, these policies require full medical underwriting. Those in poorer health may be charged higher premiums or denied coverage altogether.
Putting It All Together
Final expense life insurance helps beneficiaries pay for end-of-life costs, like funeral and burial expenses, outstanding debt, medical bills, and legal expenses. It may be less expensive and easier to purchase for older adults or those in poor health. However, the payouts are lower than other types of life insurance, and beneficiaries can use the money however they want. If you need help deciding which life insurance policy is right for you, consider working with a licensed insurance agent or broker.
Sources
2023 NFDA General Price List Study Shows Inflation Increasing Faster than the Cost of a Funeral. National Funeral Directors Association.