Life insurance provides your loved ones with an income replacement if you are no longer around to provide for them. But when you’re a senior or retired and you don’t have dependents anymore, you might not need traditional life insurance coverage. However, there is still one big cost you need to plan for: your funeral.

A funeral can cost anywhere from $8,000-$10,000, not including other end-of-life expenses such as medical costs. These costs can end up falling on the shoulders of loved ones and strain their finances.

That’s where final expense life insurance comes in — if you’re looking for life insurance coverage that you can specifically use to cover the actual cost of your death and funeral arrangements, final expense insurance, which can also be referred to as burial insurance or funeral insurance, may be right for you.

What is final expense life insurance?

Final expense life insurance, also called burial insurance, is a type of permanent life insurance meant to cover funeral expenses. The death benefit is usually used towards final medical bills and other end-of-life expenses, like burial or cremation, and items like caskets and urns, and more.

Permanent life insurance never expires and remains in force as long as you pay your premiums. Similarly, if you purchase burial insurance, the policy remains in effect for the entirety of your life and your beneficiaries receive the death benefit as long as you continue to pay the premiums.

Most traditional permanent life insurance policies require a medical exam to determine the cost of your policy, whereas final expense insurance policies don’t require such in-depth research into your background and applicants are insured after answering only a few questions.

Types of final expense insurance

There are two types of final expense life insurance: guaranteed issue life insurance or simplified issue life insurance.

Guaranteed issue life insurance

Guaranteed issue policies ask just a few knockout questions to make sure you don’t currently have a terminal illness but otherwise will cover high-risk individuals. Because of this, it’s more expensive than simplified whole life and offers lower maximum coverage amounts, typically at or below $25,000.

Simplified issue life insurance

Simplified issue life insurance is a type of whole life insurance that is good for people who may not qualify for a fully underwritten life insurance policy but are only considered moderate risk. You’ll have to answer a detailed medical questionnaire, but there’s no medical exam involved. This is your best bet for getting an affordable life insurance policy with coverage up to $50,000.

How much does final expense insurance cost?

Because there’s no medical exam involved, and because final expense policies are reserved for older or less-healthy shoppers, the cost of final expense insurance is exponentially higher when compared to term life insurance. When you’re getting a final expense life insurance policy, you might end up paying about the same as a term life policy, but for ten times less coverage.

Below are sample costs for a guaranteed issue, simplified issue, and term life policy for a 60-year-old man.

Methodology: Quotes based on policies offered by Policygenius in 2020.

As you can see, the 10-year term life policy is cheaper than a final expense policy, while offering ten times the coverage.

How to get final expense life insurance

Getting a final expense insurance policy is fairly quick and easy. There are very few barriers to getting coverage, and after an initial phone interview to verify that you don’t have a terminal illness and can pay the policy premiums, you’ll be sent your final policy documents and can make your first premium payment. On the call, you should expect to provide your Social Security Number, driver’s license number, and payment information.

The entire process can happen within a day, but whether or not you’re looking for expediency, you should always shop around for the best insurer before you commit. Each life insurance company is different, and the type of coverage you can get and how much you pay for premiums will vary across the board.

Using an independent insurance broker like Policygenius, you can find the best final expense policy for your needs. Alternatively, an adviser may find that you’re eligible for a traditional term life insurance policy, which offers more coverage at a lower cost. Evaluating your options and discussing your needs and circumstances with a professional is the best way to ensure you don’t end up overpaying for life insurance or jeopardizing your family’s financial health.

How to use final expense insurance

Final expense insurance is meant to be used as burial insurance for funeral expenses, but the beneficiary isn’t technically (or legally) required to use it that way. There are no limitations on how the death benefit can be used and they can spend it however they wish.

So how can you ensure that the policy is used as you intended?

Name someone you trust as your beneficiary

Naming someone you trust as your policy’s beneficiary is the best way to ensure the death benefit is used to fulfill your funeral plan. Whether that be your spouse, an adult child (note: never name your minor child as your beneficiary), or another family member, it should be someone who will likely be financially impacted by your death and would use the death benefit accordingly.

Name the funeral home as your beneficiary

Some funeral homes will also accept an assignment of the insurance policy death benefit payout. This means that the proceeds will go directly to the funeral home to cover the cost of the funeral. In this scenario, you would list the funeral home as the primary beneficiary, with the secondary beneficiary receiving any money over the cost of the funeral.

When you’re making arrangements, make sure to ask about payment options and don’t assume that the funeral home will accept life insurance as a payment method. Some funeral homes require payment upfront and won’t wait until the final expense insurance policy pays out.

Spell out your final wishes

If you’re leaving your family a final expense life insurance policy, but you think your beneficiaries might not know how to spend it, you can write out your wishes or lay them out to a financial adviser. This will determine how you’d like your final rites to be conducted and how the money from your policy should be allocated.

Pros and cons of final expense life insurance

Final expense life insurance isn’t meant for everyone — but there are advantages to purchasing this type of coverage. Depending on your circumstances, final expense insurance could be right for you.

What’s good about final expense insurance?

It can be relatively affordable

…if you don’t need a lot of coverage. It typically doesn’t provide as much coverage as term life insurance or even traditional permanent policies, but if you only need to cover burial costs, it could be enough for your needs.

It covers end-of-life expenses

With a traditional insurance policy, your dependents are using that death benefit for every expense: a mortgage, college tuition, everyday living, and so on — in addition to funeral costs. Given the various expenditures, they’ll have to also assume responsibility for budgeting and allocating funds.

With a final expense insurance policy, you and your beneficiaries know what the money is supposed to be used for, taking much of the stress out of not just planning your burial, but also financing it.

What’s bad about final expense insurance?

There’s little coverage for a higher cost

Compared to other types of policies, final expense insurance offers relatively low coverage — averaging $5,000 to $40,000 — for relatively high premiums.

If you don’t need too much coverage that death benefit might cover all of your needs, but depending on how high your premiums are, it may make sense to plan for a smaller death benefit or even forgo a policy and set aside savings instead. As mentioned above, the average funeral cost is around $8,000; that’s just for the funeral, not including the headstone, cemetery plot, end-of-life medical expenses, and anything else that might come up.

Who sells final expense insurance?

Many major life insurance companies sell some form of final expense insurance. AIG, Lincoln, Minnesota Life, Mutual of Omaha, and Transamerica are just some of the companies that have final expense insurance available.

Connecting with a Policygenius adviser for free is the best way to determine what final expense life insurance policies are available to you based on your individual circumstances.

What alternatives are there to final expense insurance?

There are several other ways to pay for funeral expenses besides final expense insurance. These include:

Term life insurance

If you’re relatively young and healthy, it makes more sense for you to purchase a term, or traditional, life insurance policy instead of a final expense policy. This type of policy is offered by virtually every life insurer. For term life insurance policies, you pay premiums for a set amount of time (say, 30 years) before the policy runs out and you’re no longer insured.

A term life insurance policy generally requires the medical exam to determine your health class and rates (guaranteed issue and simplified issue policies don’t, but those could be considered final expense insurance). If you’re young and healthy, traditional insurance is almost always the better choice, financially speaking.

Because traditional life insurance is more affordable for the same (or more) coverage than burial insurance, you can set your benefit amount to include enough funds to pay for your family’s cost of living and pay off any debts alongside funeral expenses. However, there may be instances where traditional life insurance isn’t feasible. If you’re older or in particularly poor health, it might not be possible for you to get insured after taking the medical exam. In this case, a final expense policy is better suited for you.

Additionally, because an assessment of your health must be made with these policy types, there’s an application time of a few weeks to a few months. If you need insurance more quickly, a final expense policy is a better bet because it will offer coverage within a few days.

Pre-need insurance

Pre-need insurance, also called pre-need funeral insurance or pre-need burial insurance is a type of permanent life insurance offered by funeral homes and funeral directors. It’s essentially a pre-paid funeral, a very specific type of final expense insurance that covers the costs of a predetermined funeral service.

One of the benefits of pre-need insurance is that you’ll get all of your funeral concerns out of the way early, know what it’ll cost, and know how you’re going to pay for it, and even get to work with a funeral director to design your funeral and memorial service yourself.

However, setting up these plans so far in advance comes with its own downsides, as a lot can change in the interim (like the funeral home changing ownership) and you won’t save that premium money to use for other purposes (investment, for instance, which will net you a much greater return and can be used for funeral payments once you actually pass).

Pre-need funeral trust

A pre-need funeral trust serves the same purpose as a pre-need funeral insurance policy – allocating money to be used specifically for funeral expenses – but rather than the funeral home waiting for the insurance policy to pay out, you contribute to a trust that accrues interest over time. This can be a cost-effective way to fund your funeral, but the interest is typically taxable and irrevocable, so it is difficult to modify.

Self-funded burial

Final expense insurance is often targeted at the elderly who might not otherwise be able to afford their burial. If you’re financially prepared for retirement, though, you may have the money you need already. Of course, this approach is a long game, and it’s not something you can decide once you get old – it needs to be something you’ve been investing in for years so that the funds can grow.

Is final expense insurance worth it?

Whether or not burial insurance is worth it depends on your age and health. A term policy should always be your first option when it comes to life insurance. It’s the most cost-effective way to cover burial costs and any other expenses you provide for your loved ones.

However, if you absolutely need financial protection and your age or health would disqualify you from getting traditional coverage, a final expense life insurance plan may be worth looking into. You should always speak to a licensed expert that can help you compare policies before committing to a pricey final expense life insurance policy.