When it comes to final expense life insurance, there are many things that people don’t know. For example, many people think that final expense is only for the elderly, but that’s not true!
In this blog post, we’ll discuss everything you need to know about final expense life insurance so you can decide if it’s the right choice for you and your family. We’ll cover topics such as what the final expense insurance is, how it works, who should consider buying it, and more.
What Is Final Expense Life Insurance?
Final expense insurance goes by many different names. For example, you might hear it called burial insurance, funeral insurance, modified whole life insurance, or simplified issue whole life insurance. All of these terms refer to a whole life insurance policy with a small face value (or death benefit) that often ranges from $2,000 to $50,000 – the cost to cover a funeral or other end-of-life expenses.
The cost for an average funeral is nearly $10,000. A final expense policy will ensure that your loved ones aren’t left with that financial burden when they are already mourning a loss.
How Does Final Expense Life Insurance Work?
Final expense life insurance in Texas is easy to understand. First, you select the amount of coverage you want. This amount is called the face value or death benefit. Then, you designate your beneficiary. You pay your premiums, and when you pass away, your beneficiary contacts the insurance company to begin the claims process.
To file the claim, your beneficiary will likely need to provide a copy of the policy, a claim form, and a certified copy of the death certificate.
Since final expense policies have lower coverage amounts, they are not intended to leave your beneficiary with extra money beyond the funeral expenses. However, they can use the funds however they choose – to pay for outstanding debts, legal costs, or other expenses not associated with the funeral. If you wish to leave your beneficiaries a more substantial death benefit, you should consider a different type of whole life policy – one with a larger face amount.
What Does Final Expense Insurance Cover?
We’ve mentioned that your beneficiaries can choose to use the death benefit from a final expense insurance policy however they wish. As they’re designed, a final expense plan is meant to cover essential funeral costs such as:
● Funeral arrangements, which may include the viewing and service
● Burial costs, which may include embalming or cremation, a casket, a plot, headstone, flowers, etc
● End-of-life medical bills
What Types of Final Expense Insurance Are Available?
While burial insurance is simple to understand, there are still several types you can choose from.
Guaranteed Issue Final Expense Insurance
As the name sounds, a guaranteed issue final expense policy is the easiest way to get a final expense insurance plan. These policies do not require the insured to answer health questions or submit to a medical exam.
A guaranteed issue life insurance plan is best for older individuals who can’t pass the medical underwriting required for other life insurance plans with larger death benefits. These individuals have serious medical conditions or terminal illnesses and would not be approved for any other type of policy.
Since insurance companies know these are riskier individuals, the coverage amounts for guaranteed issue plans are much smaller but should still help with funeral costs. The maximum face amount of these plans is $25,000. Premiums are higher than other policies because the insurance company assumes a higher risk by forgoing medical underwriting.
Some guaranteed issue plans have a graded death benefit, which means the policy must be in place for two years before the full death benefit is paid. (Some plans require a minimum of three years.) If the insured dies within the first two years of the policy, the beneficiary will receive 110% of the premiums that were paid. In the event of an accidental death, most plans pay the full amount even if the waiting period has not been met.
A guaranteed issue life insurance plan will never pay benefits in cases of suicide, regardless of how long the policy was in effect.
How Much Does Guaranteed Issue Final Expense Insurance Cost?
A guaranteed issue policy costs more than other policies because of the risk factor for the insurance company.
A 70-year-old female could pay approximately $40 per month for a $5,000 policy or more than $200 for a $25,000 policy.
Simplified Issue Final Expense Insurance
If you choose this option, the insurance company will evaluate your health based on a medical history questionnaire. A medical exam is not required, but the insurance carrier could deny coverage based on your answers to the medical questions. You must be between the ages of 45 and 85 to qualify for a simplified issue policy.
The benefit to this type of plan versus a guaranteed issue plan is that you can often get higher coverage amounts. Polices range from $5,000 to more than $50,000. However, because the insurance company takes on more risk by not performing a medical exam, the premiums will be higher than those for policies that require more extensive medical underwriting.
Some plans contain the graded death benefit rule, while others do not.
Can I Add Riders to My Simplified Issue Final Expense Insurance?
A simplified issue final expense plan can be in the form of either a term life or whole life policy, and additional riders may or may not be available. Any rider added to a policy will increase the premium. The three most popular riders are the accelerated death benefit, long-term care, and disability waiver of premiums riders.
● An accelerated death benefit rider allows the insured to access the death benefit if diagnosed with a terminal illness.
● A long-term care rider will payout the death benefit if the insured is admitted to a long-term care facility and has no other insurance to pay for the cost.
● The disability waiver of premiums rider will waive the premiums if the insured suffers a loss of income due to a new disability. The premiums are only waived until the insured recovers.
What Might Disqualify Me from a Simplified Issue Final Expense Plan?
There is no harm in applying for a simplified issue plan, even if you are denied coverage. Some of the things that may disqualify you include:
● If you are a resident of a long-term care facility, nursing home, or are otherwise bedridden
● If you require the use of a wheelchair or electric scooter
● If you require oxygen equipment
● If you’ve been diagnosed with or treated for congestive heart failure, organ or bone marrow transplant, diabetic coma, Alzheimer’s, or dementia
● If you have a terminal illness
● If you’ve had heart surgery or been diagnosed with heart disease in the last 12 months
● If it’s been recommended you have an operation or diagnostic testing that is not routine
● If you’ve been diagnosed with any type of cancer within the last two years
How Much Does Simplified Issue Final Expense Insurance Cost?
Simplified issue final expense insurance in Austin, TX, is less expensive than guaranteed issue plans. The premiums consider personal factors like your age, location, health condition (including tobacco use), how much coverage you desire, and if there are any riders on the plan.
A 45-year-old non-smoking female may find a policy that ranges from $1
0 to $100 per month.
Pre-Need Final Expense Insurance
Pre-need insurance is a little different from the other final expense insurance forms. These plans require a contract between you and your funeral service provider. The contract includes the specific services and products you have pre-selected for your eventual funeral.
Your monthly premiums go towards the cost of your funeral. The funds go directly to the funeral service provider rather than a beneficiary when you pass away. If you have not paid enough premiums to cover the cost of your funeral before passing away, your family will be expected to pay any remaining amount.
We do not recommend pre-need funeral insurance in most cases. If the funeral provider files bankruptcy, you lose all the premiums you had already paid. In addition, the funds cannot be used for any other expenses like legal fees or end-of-life medical costs. Pre-need plans do not have any flexibility in how the death benefit can be used. They often have less value than other types of final expense plans.
Are Final Expense Insurance Plans Worth It?
That depends! Every client we meet has unique needs. What works for one person doesn’t necessarily work for another person. There are a few things to consider if you’re trying to decide if final expense insurance is worth it for you and your family.
You should first consider if a term life or whole life policy would be more beneficial to you. These policies have larger death benefits, providing financial assistance for more than just funeral costs. They can even operate as retirement plans or other savings accounts.
You’ll also need to consider any dependents you’ll leave behind. Will they have the funds to pay for a funeral? Do you have a savings account that can cover the cost of a funeral? Will they have other sources of income if you pass away? If the answer is no to any of those questions, either a final expense insurance plan or another type of life insurance policy would be beneficial.
How Do I Choose a Final Expense Policy?
The first step in choosing a final expense policy is determining your health risk. If you’ve been denied coverage for other life insurance plans due to your health status, you may only be approved for a guaranteed issue plan.
Once you’ve chosen the type of policy you’d like to apply for, think about how much coverage you want to obtain. You should consider the average cost of a funeral, other final expenses you might have, and if your family will need additional funds when you pass away. This is especially true if you provide most of the income for your family.
If you’d like help choosing a final expense insurance plan, our licensed insurance agents can guide you during the process. We’ll help determine which type of policy is best for you and submit the application on your behalf. Call our office today for your complimentary consultation.