Most people think of life insurance when they want to provide financial stability for loved ones in the event of their untimely death.
Much planning goes into calculating how much life insurance you need at various stages in your life. You may want to replace income for the household while children are living at home or cover debts to keep loved ones from experiencing financial strain when they settle your estate.
Not all life insurance policies are suitable for people who simply want to cover their funeral and burial expenses, though. Those in retirement may not have the same life insurance needs that they did when they were raising a family or building a business.
Even so, burial and funeral expenses can put a strain on a family’s finances. In America, the average funeral could cost you between $7,000 and $10,000. Since laws about burial vary by state, costs could be higher in some areas.
Cremation is less expensive but will still cost about $4,000 with the help of a funeral home. The cost of a funeral rose nearly 30% between 2004 and 2014 according to the National Funeral Directors Association. Final expense insurance is one way to cover medical costs and other expenses at the end of life.
What happens if the family can’t pay for a funeral?
When a person dies, a member of the family or a close friend usually claims the body. They are then responsible for making burial or cremation arrangements. If there isn’t anyone who has the financial means to pay for the associated costs, the body goes unclaimed and the state must make arrangements for burial.
What is final expense insurance?
Final expense insurance falls under the umbrella of permanent life insurance. It’s a type of guaranteed life insurance, so there’s no requirement for a medical exam or health investigation. The policy is typically issued after the applicant answers a few general questions.
Final expense insurance stays in force no matter how long the policy owner lives. It also costs more than other types of life insurance, but everyone who applies gets coverage so long as they are willing to pay the premiums. Even people who are advanced in age or very ill can get coverage quickly.
Some funeral homes will accept proof of final expense insurance and assignment of the benefit instead of payment upfront. This is great for the family because then they don’t have to come up with thousands of dollars when their loved one dies. The beneficiary named on the insurance policy gets any money left after the funeral home settles the account.
Not all funeral homes accept this payment arrangement, though. In those cases, friends and family must pay the funeral home up front and recoup the money with the insurance company payout.
Why people buy final expense insurance
For seniors who don’t need a large life insurance policy, but still want to cover their end-of-life expenses, a final expense insurance policy meets their needs. This type of life insurance is more expensive, though. If you are in good health, you may be able to buy a term life insurance policy for less money.
People who buy final expense insurance may not realize that they have other, more cost-effective options. Remember, just because it’s called final expense insurance, doesn’t mean that the beneficiaries must spend the money on funeral, medical, and burial costs.
If your goal is to guarantee that your funeral and burial costs are covered you’ll want to consider other options, as well. A self-funded burial is a good idea for people who can fund their own retirement. If you already have enough money set aside to live comfortably, you may be able to pre-pay for your funeral and burial. This arrangement also allows you to make choices about where you will be buried and oversee the details of the memorial service or funeral.
A pre-need funeral trust account provides a secure way to set aside money specifically for burial and funeral expenses. The account earns interest over time. The downside to this type of account is that it’s irrevocable and the interest is taxable. It may be impossible to modify the arrangement.
Pre-need insurance covers funeral and burial costs, but it’s set up and managed by the funeral home of your choice. You’ll choose which services to cover and make the arrangements, so your family and friends won’t have to go through the process or pay the bill. The problem with pre-need insurance through a funeral home is that the ownership of the business could change before you die, which could affect your coverage. Money that you’ve tied up in pre-need insurance won’t be available to invest.
If you decide to buy a final expense life insurance policy, make sure you don’t have other less expensive options. Final expense insurance can provide peace of mind, and since a medical exam is unnecessary, the process is fast.
Traditional life insurance may be a better choice to cover funeral and burial expenses
Term life insurance is usually an easy-to-get and inexpensive type of life insurance. If you are in relatively good health, a small term life policy is likely to cost less than the same amount of final expense insurance. If you go this route, just make sure you choose a term for the policy that isn’t likely to expire before you die.
You may have to answer a few more health questions for a term policy since the premiums are based on age and health status. Term life insurance policies also take longer to issue, so if you need insurance right away, a final expense insurance policy could be the answer.
Before making a decision about how to cover your end-of-life expenses, get a quote for a simple and straightforward term life insurance policy.