The one thing we all have in common is the inevitability that one day we will no longer be here. It’s not pleasant to think about, but have you ever given a thought to what will happen to your family after you are gone? Emotional hardship aside, a family has to endure significant financial difficultes, especially if you were the provider of your family. But getting life insurance approved, especially when you cross a certain age in your life, can be difficult. So, today we are going to discuss a permanent life insurance policy known as final expense insurance, typically intended to help older adults cover funeral costs and other end-of-life expenses.
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What Is Final Expense Insurance?
Final Expense Insurance, also known as “funeral insurance” or “senior life insurance” is a short-term life insurance policy that can be taken even at an old age or if you have some kind of medical condition. But the death benefits you gain are significantly lower than typical life insurances ranging from $2000 to $35,000 depending on your age, medical condition and several other factors.
Final Expense Insurance is typically intended to help families cover up immediate expenses after death like funeral service, burial, and hospital bills. The premiums for a final expense policy are often lower than those for other types of life insurance, such as term or permanent insurance. This makes Final Expense Insurance a trendy option among people aged between 50 – 85 years old who do not necessarily want to spend too much money on insurance premiums.
How Does Final Expense Insurance Work?
It is very important that you understand the inner workings of the Final Expense insurance before evaluating the policy. So consider a use case where you have recently retired, and because your life insurance was taken care of by your employer, you currently do not have any active insurance policies.
You contact a life insurance agent and begin the application process, which includes answering a few health-related questions. The death benefits are excellent, but the premiums are significantly expensive because of your age and health condition as insurance providers are considering you as a high-risk person. Also, there is no guarantee that you will get life insurance in the first place; as the older you get, the chances of getting life insurance decreases.
So instead of leaving your family in a financial burden, you choose Final Expense Insurance to pay only a small premium each month. This allows you to have peace of mind, and your family gets enough money to pay off your immediate expenses like funeral and hospital bills after you die.
Types of Final Expense Insurance
There are two main types of final expense insurance:
Simplified Issue Final Expense Insurance
This policy is ideal for people who are in good health condition and are looking for a way to cover the end of life costs. You may be required to answer a few health-related questions on the application, but no medical exam is required. The amount of coverage for basic coverage usually ranges from $5000 to $35,000.
Guaranteed Issue Final Expense Insurance
The guaranteed issue is ideal for people who are unable to get other types of life insurance due to their age or health. With the guaranteed issue, there are no health criteria; therefore, anyone who satisfies the age requirements can usually qualify. The most common coverage amounts range from $2000 to $25,000 in most cases.
Understanding the Basics of Final Expense Insurance
How is Final Expense Insurance Premium Determined?
Final expense insurance premiums, like any other type of life insurance, are determined by your age,health and where permitted by state law, they may also be determined by your gender. The older you get and show signs of health issues, the more premium you have to pay as your insurance premium. Another interesting factor determining the premium is because men have a shorter average life expectancy than women, they pay higher rates. You may also be eligible for a lesser rate if you do not use cigarettes or other tobacco as they are deemed unhealthy for your health.
Who Can Apply for the Insurance Policy?
People from the day they were born to the age of 85 can get final expense insurance from several insurance firms. However, depending on the policy and the insurer, you may be able to apply at a minimum age (such as 45) or a maximum age (such as 85). The most significant death benefit you can choose may be reduced as you get older. If you’re under 55, you might be able to get a $50,000 policy, but if you’re 70, you’ll only be able to get a $25,000 policy. Although some insurers provide all applicants with the same maximum death benefit regardless of age, the amount is usually lower than the market value.
Term vs Whole Life Insurance
Term insurance, as the name suggests, is a stripped-down form of insurance that is only good for a certain period of time. Whole life insurance, on the other hand, has no expiration, and once you take the policy, you have to continue paying premiums for the rest of your life.
Final Expense Insurance is a type of whole life insurance, and therefore the premiums cannot increase, and the death benefit cannot decrease as stated by the law. But you do have to continue paying the premium for the rest of your life. Whole life insurance also builds up a cash value that you can borrow as a loan when needed, but any unpaid debts will diminish the amount of money your beneficiaries receive when you die.
Pros and Cons of Final Expense Insurance
It is crucial to figure out if final expense insurance is right for you as there are some obvious pros and cons to consider.
Pros:
- Policies are available for older people with health issues.
- The applicant is not required to go through an extensive medical test; answering some basic questions is enough.
- The cost of the premium does not change over time.
- Unless you borrow against the policy’s cash value or seek accelerated death payments, the insurer cannot reduce your policy’s death benefit.
- The death benefits can be used for any purpose.
- The death benefit is not taxable.
Cons:
- Because the policy has a low death benefit, living long will make you pay more in premium than you actually receive.
- Allowing policies to lapse will cancel the policy, causing no payment through death benefits.
- Some of the marketing terms used by insurers are questionable, often containing confusing or misleading information.
Which Life Insurance is Better for You?
We did our own calculation to find out if Final Expense Insurance is worth it and, if so, which demography will best benefit from the policy.
Using Choice Mutual’s online quote tool, we found out that an average 60-year-old woman living in Michigan who has not smoked in the last 12 months and assuming she is in good health has to pay around $110/month for a $20,000 final expense insurance policy. She had over 15 years before the insurance break even at this rate. But if she had a severe health condition and had been smoking, the monthly premium would jump up to $330 a month, and in just over six years, she would have paid more money than the total death benefit policy.
This example perfectly illustrates if final expense insurance is a good fit for you. If you are a healthy person into your late 60s and do not mind putting aside a couple of hundred dollars each month for great death benefits that help your family after you are gone, you will certainly appreciate the policy. You have over 15 years before you pay more than the insurance policy covers, and most people will not mind that. But if you are an unhealthy person with serious medical issues( and choose to disclose this information), the monthly premium increases quickly and may not be an ideal policy for you. In that case, it would be better for you to save money in a bank account rather than getting a guaranteed final expense policy
Final Expense Insurance (Summary)
Life insurance enables people to have peace of mind and gives them the freedom to plan ahead in life. It is never too early to get life insurance, but Final Expense Insurance can be a great option if you do find yourself without one during your 50s. Getting life insurance can be difficult when you reach a particular stage in life, but Final Expense Insurance allows you to get insurance approvals even without a health check. You can apply for insurance even in your 80s and get death benefits that benefit your family. Although if you have any medical condition, and choose to disclose the information, you will have to pay an inflated price on monthly premiums and in that case it will not be the best option available to you.
