The Purpose of Final Expense Insurance
Final expense insurance is meant to cover funeral costs and burial costs, which can be thousands of dollars for even a basic casket, burial plot, and ceremony. In addition, the payout may be used for any purpose your beneficiary(ies) choose. If you pass away and leave behind debt from end-of-life medical care, this insurance can help. It can also be used to pay off credit card debt or other bills.
While the premiums for these policies can be high, final expense insurance is a wise option once you reach a certain age or develop health issues. If an insurance carrier considers you to be a high risk, final expense insurance could be easier to obtain than other policies.
How Does It Work?
Final expense insurance can keep your family from having to pay out-of-pocket expenses for burial costs, credit card debt, or medical bills. A final expense insurance policy, also called burial or funeral insurance, includes a higher premium and lower death benefit than a traditional policy. Most final expense insurance policies are whole life insurance policies. Once you purchase a policy, your premium payments never increase.
Your policy may be a simplified issue or a guaranteed issue product. Simplified-issue life insurance and guaranteed-issue life insurance are both types of life insurance that do not require a medical exam to be eligible for coverage. However, there are some key differences between the two:
- Eligibility: simplified issue life insurance requires the applicant to answer health questions on the application, which the insurance company uses to determine eligibility and premium rates. Guaranteed issue life insurance is available to anyone, regardless of their health status.
- Premiums: simplified issue life insurance only requires the applicant to answer health questions, rather than undergo a medical exam, the premiums for these policies are typically lower than those for fully underwritten policies that require a medical exam. However, the premiums for guaranteed issue life insurance are typically higher, as the insurance company is taking on more risk by issuing a policy to someone with pre-existing health conditions.
- Coverage: both simplified issue life insurance and guaranteed issue life insurance offer coverage, but the amount of coverage may be limited. Simplified-issue life insurance may have lower coverage limits compared to fully underwritten policies, while guaranteed-issue life insurance may have even lower coverage limits.
- Waiting periods: some guaranteed issue life insurance policies have a waiting period before the full death benefit is paid out. If the policyholder dies during the waiting period, the beneficiary may only receive a portion of the death benefit or may be required to pay back premiums paid. Simplified issue life insurance policies may also have a waiting period before the full death benefit is paid out.
When to Buy a Final Expense Policy
Burial or funeral insurance is a popular purchase for mature adults or seniors. In reality, most final expense carriers have a lower age limit for eligibility. Some final expense policies are available when you turn 50, and you can apply for most of them up until age 85.
There are also age limits for final expense coverage, which depend on your carrier and policy. Some policies stay in effect until death as long as premiums are paid. Other policies pay out at age 100.