The traditional purpose of life insurance is to provide financial coverage for your loved ones in the event that you die. “Financial coverage,” however, can mean very different things to different people. Some people purchase life insurance so that they won’t pass their debt onto loved ones. Others want to leave behind a sizable chunk of cash to help loved ones pay for college or a wedding. And yet others just want to make sure that their loved ones will have enough money to pay for their funeral expenses. The latter type of life insurance, often known as final expense insurance, is what we’ll be discussing here.
What is Life Insurance for Funeral Expenses?
Life insurance for funeral expenses, also known as final expense life insurance, burial insurance, funeral insurance, or simplified issue whole life insurance, is a type of permanent, no exam life insurance policy that ensures that your final expenses won’t fall on the shoulders of your loved ones.
Final expense policies offer a small death benefit, usually between $2,000 and $50,000. This is usually enough to cover final expenses like funeral and burial/cremation, but not so high that you need to pay a hefty amount in monthly premiums. Plus, it’s usually easy to qualify for these types of policies since no exam is required.
While final expense insurance is marketed as a way to cover funeral costs, etc., there is no enforcement on the part of the life insurance company to ensure that this is what the funds are used for. If the beneficiaries decide they want to use the death benefit for something else, they can. The beneficiary of the policy does not need to pay for the funeral. In most cases, however, they are aware that this is the reason that the policyholder purchased this type of policy to begin with and will honor their wishes.
Life Insurance vs. Funeral Insurance
There is essentially no difference between life insurance and funeral insurance. The latter is just a type of life insurance with a relatively small death benefit and more affordable premiums. For this reason, it’s usually marketed toward seniors who are concerned with covering their final expenses. Other names for funeral insurance include final expense insurance, burial insurance, and simplified issue whole life insurance, and they can be used interchangeably.
People who buy funeral insurance are those who don’t want to burden their loved ones with the cost of funeral expenses, which can range between $7000 and $12,000, according to Lincoln Heritage Funeral Advantage. At the same time, they also can’t afford larger life insurance policies that have higher premiums.
Moreover, they may not qualify for life insurance policies with larger death benefits due to health problems that naturally occur as people age. If they do qualify, they are likely to be put into a lower class due to health issues and age, and their premiums will be higher than those of a funeral insurance policy.
For this reason, funeral life insurance is a more practical, affordable option. The low death benefit can cover funeral costs but won’t make the monthly premiums shoot up. Plus, there is no requirement to undergo a medical exam for this type of life insurance, which makes qualifying easier.
Pros and Cons of Life Insurance for Funeral Expenses
As with any life insurance policy, there are pros and cons of buying one designated for funeral expenses.
- Relatively low monthly premiums
- No medical exam, therefore easier approval
- Permanent policy that lasts your entire lifetime
The cons for this type of policy include:
- If you live longer than expected, you may end up paying more in premiums than the value of your death benefit
- You may be able to qualify for life insurance with a higher death benefit
The last con is not really a disadvantage of final expense insurance but rather a mistake made by the purchaser. It highlights how important it is to buy the right type of policy for your specific situation. In some cases, people are misled by insurance companies that market final expense insurance to a broad audience without taking your particular situation into account.
That’s why consulting with an expert is crucial. Why get a maximum $50,000 death benefit if you can qualify for more (and can afford it)? Sproutt insurance advisors are available to help you determine which policy is best for you. While final expense insurance can be the right choice for some, it’s important to do your due diligence to make sure it’s right for you.
How Much Does Final Expense Insurance Cost?
The cost of final expense insurance varies with each individual, the same as any other type of life insurance policy. Factors that influence the cost include:
- Smoking status
- State of residence
Since there is no medical exam requirement for this type of life insurance, health doesn’t play as big a role as it does in some other types of life insurance. But it does play a small role. Age requirements usually range between 45 and 85, while men usually pay higher premiums than women because they have a statistically shorter life expectancy. (According to the World Health Organization, women live six to eight years longer than men on average.)
Guaranteed Issue vs Final Expense Life Insurance
Guaranteed issue (insert link to previous Sproutt article about GI) is a specific type of final expense life insurance that anyone under the age of 80 or 85 can qualify for (the exact age limit depends on the insurer). Unlike final expense insurance, in which health plays a small role, with guaranteed issue, health plays no role. No matter what health issues you have, you can get approved for it. However, there are several “catches” to guaranteed approval.
- A waiting period – If you die within two or three years of purchasing the policy, your loved ones won’t get the full death benefit. They’ll only receive a refund of the paid premiums, plus a few percentage points
- Limited coverage – Up to $25,000 (which can be enough for final expenses)
- Expensive – Guaranteed issue is more expensive than final expense, and is usually recommended by life insurance experts as a last resort if you can’t qualify for any other type of policy
Life insurance for funeral expenses is a type of no exam, whole policy that provides up to a $50,000 death benefit. When people buy this type of insurance, they buy it for the purpose of helping their loved ones cover the costs of their final expenses, but the beneficiaries are not required by law to use it for this purpose.
Final expense is a good type of life insurance for older people who:
- Can’t afford to pay the higher premiums of a larger death benefit
- Have health issues and can’t qualify for other types of life insurance
- Are only interested in helping their loved ones cover the cost of funeral and burial/cremation
If you are older but can afford to pay higher premiums for a larger death benefit, that might be a better option. On the other hand, if you can’t qualify for final expense insurance due to health issues, you can still get coverage through a guaranteed issue life insurance policy.
Still have questions? We have answers! Read on to learn more about life insurance for funeral expenses.
Does life insurance cover funeral costs?
Life insurance can cover funeral costs, but it can also cover any other type of expense. The decision belongs to the beneficiaries of the policy. There are, however, policies that are marketed to seniors as a way to cover final expenses. While you can buy this type of policy, there is no legal requirement for your beneficiary to use it for this purpose. (Though hopefully, they will.)
What’s the best life insurance for funeral expenses?
There is no one-size-fits-all answer to this question. The best life insurance is usually one that will give you the best deal for maximum coverage. The “deal” you get will depend on several factors, including your age, state, amount of coverage required, and more. Another way to figure out what’s the best life insurance is to choose a company with good ratings and reviews. Here’s a good roundup of some of the top-rated life insurance companies.
What’s the difference between life insurance and funeral cover?
Funeral cover is another name for funeral insurance, and it’s not different from life insurance — it’s a specific type of life insurance. Funeral cover/insurance is a whole no exam policy with a limited death benefit, usually up to $50,000. It’s marketed to seniors who don’t want to/can’t afford to pay high monthly premiums for a larger death benefit or due to health reasons.
Does the beneficiary of a life insurance policy have to pay for the deceased’s funeral cost?
No, the beneficiary does not need to pay for the deceased’s funeral expenses, but in the case of final expense insurance, there is an understanding that that’s what will happen. The entire purpose of final expense life insurance is to cover the cost of the funeral and burial/cremation. While the policy’s beneficiary is not legally required to do so, it is the ethical thing to do. You can also make the funeral home the beneficiary of your policy to avoid any misunderstandings.
Can other types of life insurance pay for funeral expenses?
Absolutely. Final expense/burial/funeral insurance is a small whole life insurance policy with relatively affordable premiums and easier acceptance. However, if you want to buy a larger policy, you can. Just speak with your beneficiary before and specify that you’d like a portion of the death benefit to go toward your final expenses. As with a final expense policy, there is no legal requirement for the beneficiary to use the death benefit for that purpose. But since there is usually a matter of trust involved, the hope is that the beneficiary will use the funds for your desired purpose.