Life insurance comes in several different forms, but usually the reason for purchasing a policy is to be able to provide for loved ones when you're not able. Even after you're gone, expenses like college and mortgages still go on. Even if you've passed the age where these are big concerns, there's still a big expense that can't be ignored: the cost of your funeral and burial. This is what final expense insurance is designed for.
Final expense insurance is a type of permanent life insurance. While not aimed at providing a living for those left behind, it's purpose is to provide coverage for end of life expenses like medical bills and funeral costs. This can cover things like casket and hearse, headstone, cremation fees and the cost of a service.
A permanent life insurance policy is one that does not expire as long as the premiums are paid. Unlike term life insurance, which is cheaper but has a set expiration date, a permanent policy carries a cash value. This value builds up during the life of the policy and is generally paid out upon your death. After a certain amount of time, you may be able to cash out the plan.
Final expense insurance has some commonalities with guaranteed life insurance. While traditional life insurance requires an full background of your health, often including a physical exam, a guaranteed insurance policy is usually granted after just answering a few questions.
Final expense insurance may not be for everyone, but it does have certain perks. One of the biggest benefits is that it may be more affordable than a traditional life insurance policy. It may not carry as much value as other insurance, but if your only needs are to provide for your end of life, it can often be enough to cover all those expenses.
There's also a certain peace of mind in knowing that your funeral costs will be covered no matter what. With other insurance policies, your dependents will also be using that money to cover daily living expenses and have to pay for a funeral on top of that.
The average cost of a funeral is about $8,000 dollars, but that just covers the actual funeral itself. Other things like a headstone, cremation, burial plot or medical expenses can add up to a whole lot more. Final expense insurance offers smaller coverage than other types of insurance, usually ranging to upwards of $25,000 for more expensive plans. It's worth considering whether or not this will provide enough value for the investment.
Depending on financial ability, there are other more affordable ways to get a typical life insurance policy in relation to the level of coverage that policy provides. In fact, even traditional investing can provide more value because those investments can yield financial returns.
Even though final expense insurance is meant to pay for funeral and other end of life costs, the policy beneficiary isn't actually required to use the money for that purpose. Before purchasing final expense insurance, you should make sure that you'll have a trusted beneficiary to take care of your wishes after you pass.
Final expense insurance isn't the only way to help cover end of life costs. Here are a few alternative options:
If you're at a stage of life where your retirement planning has provided enough resources for your financial independence, it's entirely likely that you will have enough cash to cover your own funeral and other expenses. However, this usually takes decades of planning and isn't feasible as a last resort option.
This is offered by pretty much any insurance company out there, and is a good option if you're relatively healthy and young. This usually requires a medical exam to ensure that you're healthy enough to insure, and that can be a barrier if you're in poor health. However, if you qualify, traditional life insurance is often far more affordable than final expense insurance.
This type of insurance has the most in common with final expense insurance. It relies much less on your medical and health history. This means that coverage usually comes much more quickly, but the monthly premiums are generally more expensive than traditional life insurance.
Depending on your situation, final expense insurance can be a great way to make sure that you have the ability to cover all the costs associated with your end of life. This can remove a burden from your loved ones after you pass that can make a difficult time a little bit easier.
There are other options, however, that should be explored in addition to final expense insurance. While other insurance options may offer more affordable monthly payments in exchange for a larger payout, if you're in a position that requires a way to cover your expenses without the time to invest in long-term options, then final expense insurance can be an excellent way to provide for your end of life.
No matter what, it's worth taking the time to talk with a trusted insurance advisor who can go over all of your options and find what works best for you.