Final expense life insurance

Need life insurance coverage to pay for funeral expenses? Final expense insurance might be what you're looking for - but is it worth it?

Colin Lalley 1600

Colin Lalley

Published September 24, 2019

Life insurance is a great option if you need income replacement, but when you’re a senior or already retired and you don’t have dependents or significant financial responsibility anymore, you may no longer need life insurance coverage. But there’s still one big cost you need to plan for: your funeral.

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.

In this article:

What is final expense insurance?

Final expense life insurance is a type of permanent life insurance where the death benefit is used to cover medical costs and other end-of-life expenses, most often funeral costs including services like burial or cremation, items like caskets and urns, and more.

Permanent life insurance does not expire and remains in force for as long as the premiums are paid. If you purchase final expense insurance, as long as you continue to pay the premiums, the policy will be in effect until you die and your beneficiaries will receive the death benefit.

Unlike traditional life insurance policies, which require a medical exam to help set the cost of your policy, final expense policies like a burial insurance policy don’t require such in-depth research and applicants will often be insured after answering only a few questions.

Types of final expense insurance

Final expense insurance comes in two types: guaranteed issue life insurance or simplified issue life insurance.

Guaranteed issue life:

  • 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. → Read our full page on guaranteed issue life here

Simplified issue life:

  • Simplified issue life insurance is for people who may not qualify for fully underwritten life insurance policy, but are considered only 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 a life insurance policy affordably with coverage up to $50,000. → Read our full page on simplified issue life here

How much does final expense insurance cost?

Because there’s no medical exam involved, and because it’s reserved for older or less-healthy shoppers, the cost of final expense insurance is about the same as a term life policy, for ten times less coverage.

Below are sample costs for a guaranteed issue, simplified issue, and term life policy for a 68-year-old man.

Term10 years$250,000$164.84

As you can see, the 10-year term life policy is around the same cost as the cheaper final expense policy. While the term policy expires in 10 years, a $100,000, 20-year policy would still only average around $171 a month.


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How to use final expense insurance as funeral 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 do so. The death benefit can be used for whatever they wish.

Policyholders name someone a beneficiary that they trust to use the death benefit money to fulfill their funeral plan. This is especially true for policyholders of final expense insurance; they typically skew older in age and may not have trusted people like a spouse or siblings to name as their beneficiary.

Some funeral homes will 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. (The funeral home would be 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 this and don’t assume that the funeral home will accept this sort of payment method; some funeral homes require payment upfront and won’t wait until the final expense insurance policy pays out.

Pros and cons of final expense life insurance

What’s good about final expense insurance?

  • Final expense insurance is relatively affordable if you’re on a tight budget. It typically doesn’t provide as much coverage as other insurance (more on that later), but if you only need enough of a payout to cover burial costs, rather than a payout for long-term expenses, it could be enough for your needs.
  • Final expense insurance provides peace of mind in regards to funeral expenses being covered. With a traditional insurance policy, your dependents are using that death benefit for every expense: mortgage, college, everyday living, and so on, in addition to funeral costs. With final expense insurance, you and your beneficiaries know what the money is supposed to be used for, taking much of the stress out of planning your burial.

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 $25,000 — for relatively high premiums.
  • That death benefit might cover all of your needs, but depending on your premiums, it may make sense to plan for a smaller death benefit or even forgo a policy and set aside savings instead. For reference, the average funeral cost is around $8,000; that’s just for the funeral, not including 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 that have final expense insurance available.

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 traditional life insurance policy instead of a final expense policy. This type of policy is offered by virtually every life insurer. You can pay premiums for a permanent life insurance policy, as described above, or get a term life insurance policy, in which you’ll pay premiums for a set amount of time (say, 30 years) before the policy runs out and you’re no longer insured.

Traditional life insurance generally requires a paramedical 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 per unit than a funeral insurance policy , you can set your benefit amount to include enough funds to protect your family and pay off any debts and include enough to cover your funeral expenses, as well.

However, there may be instances where traditional life insurance is not a feasible option. If you’re older or in particularly poor health, it might not be possible for you to pass a paramedical exam and get insured.

Additionally, because an assessment of your health must be made with these policy types, there’s an application time of between a few weeks and 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 or simply pre-need 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 which 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 – 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. These can be a cost-effective way to fund your funeral, but the interest is typically taxable and they’re irrevocable so they’re 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 already been working on so you can invest and have your money grow.

Is final expense insurance worth it?

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 expenses, and any other expenses your loved ones may have.

However, if you absolutely need the financial protection and would only be able to get covered by answering health questions and avoiding the medical exam, a final expense 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.