The kids are finally grown and have their own families. Great news, right? Raising them has been fun, but now that they’re gone, you’ll have time to focus on so much stuff you had to put off before. Hobbies anyone? (Yes!)
Of course, even empty-nest-hood’s not all fun and games. There are also some important questions to ask. How’s your health, for one? And while we’re at it, here are a couple more nobody wants to think about—what will happen when you die? Who’s going to pay for medical costs and funeral expenses? No, they’re not popular dinner topics. But everyone needs answers for those questions sooner or later.
Chances are you’ve heard about something called final expense life insurance. It’s designed to help loved ones pay for an older adult’s end-of-life expenses. The monthly premiums are advertised as low, and it doesn’t require a medical exam. Sounds good. But is it really the right solution?
Let’s find out.
What Is Final Expense Insurance?
Older adults usually buy final expense insurance (aka burial insurance, funeral insurance, and simplified issue or guaranteed issue whole life insurance) to help their surviving loved ones pay for their end-of-life expenses.
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You can get approved more easily than you can for most insurance policies. Typically, you don’t even need to have a medical exam—that’s a big deal if you have health issues! Plus, the 2021 average cost of a funeral with a viewing and a burial was $7,848—so a little help would go a long way!1
But while insurance companies make it sound enticing, and it does make sense to set aside money for end-of-life costs, final expense insurance isn’t necessarily the best option. We’ll explain why later, but first let’s go over the different types of final expense insurance.
Types of Final Expense Insurance
This part’s easy. There are only two types of final expense insurance: simplified and guaranteed. Each varies slightly in how much coverage you can get, how much you’ll pay for it, and how much medical information you’ll need to provide. Let’s see what you need to know.
The good news is you can get simplified issue life insurance simply by filling out a medical questionnaire (medical exams aren’t necessary). It’s usually for people who need life insurance right away, people who were denied traditional life insurance, or for those who don’t want to go through a medical exam.
The not-so-good news? The premiums tend to be higher and coverage amounts are lower than traditional life insurance.
Guaranteed final expense life insurance is easier to get than simplified—you can get it even if you have a serious health issue. And like simplified final expense insurance, there’s no medical exam and an even shorter medical questionnaire (or none at all).
Guarantees are nice, right? Just know you’ll pay higher premium costs and be restricted by a lower death benefit cap (usually $25,000). Insurance companies take on more risk with this type of policy, so they often make it up in several ways:
- Charging higher premiums
- Limiting the death benefit amount
- Requiring a longer waiting period
How Much Does Final Expense Insurance Cost?
The premium amount for final expense insurance is higher per dollar of coverage than what you’d pay for the same benefit amount with other types of life insurance.
For example, for a final expense life insurance benefit amount of $50,000 for a 70-year-old man, your monthly premium could be double or even triple the amount you’d pay for the same $50,000 term life insurance benefit amount for the same 70-year-old man.
Is final expense insurance part of a smart financial plan? No way! We just don’t think final expense insurance is a smart way to spend your money. Let’s go over the reasons why.
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Is Final Expense Insurance a Good Idea?
Buyer beware here—final expense insurance is a classic emotional purchase. And insurance companies know this.
Knowing that end-of-life is a sensitive subject and that most people want to do right by their families, some insurance companies will try to sell you final expense insurance by talking up its lower premiums compared to other kinds of policies.
While it may be true that final expense premiums are low, there’s a good reason for that—because per dollar spent, you’re getting less coverage. For example, your premium might be only $10/month. Fine. But the payout is only $25,000! Not much bang for those bucks! All told, you’re paying a lot more—dollar for dollar—for less coverage than other types of life insurance.
Here's a table that clarifies the pros and cons of final expense life insurance that we’ve discussed.
Policies are available to people with poor health.
Some insurers put confusing or misleading information into their marketing materials.
No medical exam.
Some final expense insurers use marketing scare tactics based on high average funeral costs and play on seniors’ fears of burdening their loved ones.
Death benefit is not taxable.
Some insurers steer consumers without major health problems toward final expense policies even though those consumers can qualify for better coverage.
As you can see from the Cons column, there are valid reasons to be wary of final expense life insurance. The most obvious one is huge—you’re basically just paying an insurance company to set aside money for you to help your loved ones pay for your end-of-life expenses. Don’t do this!
You’re much better off keeping your money in a savings account or buying a term life insurance policy.
What Is the Best Kind of Life Insurance?
Picking the right life insurance can be confusing, right? There are so many types to choose from! And it’s so important to pick the right one.
So, which one is best? Well, the safe answer is that it really comes down to your needs and budget.
But a better answer for anyone looking for the straight scoop (and most of us are these days) is that in almost all situations, we recommend term life insurance.
Term life insurance is much less costly than final expense life insurance. If you die during the terms (that you set) of your term insurance policy, your beneficiaries will receive the full amount of the term insurance payout, including money to cover your end-of-life expenses.
Talk With a Pro About Insurance That Works for You
To sum it up, final expense insurance is a just marketing phrase for a small life insurance policy that’s easy to qualify for but comes with expensive premiums. Don’t fall for it.
Instead, talk to a RamseyTrusted insurance provider—we recommend Zander Insurance. They’re insurance experts who can explain the benefits of term life insurance versus final expense life insurance, so you can make an informed decision about setting aside money for your end-of-life expenses.